QUESTION Maria Chavez owns a catering company that serves food and beverages at parties and business functions. Chavez's business is seasonal, with a heavy schedule during the summer months and holidays and a lighter schedule at other time.
One of the major events, Chavez's c customers request is a cocktail party. She offers a standard cocktail party Prand has estimated the cost per guests follows:
Food and beverages DH 15 Labor (0.5 hrs @ Dh 10 per hr) 5.00 Overheads (0.5 hrs @ Dh 13.98 per hr) 6.99 Total cost per guest beverages and la DH 26.99 The standard cocktail party last three hours and Chavez hires one worker for every six guests, so that workers out to half hour of labor per guest.
These workers are hired only as needed and are paid only for the hours they actually worked. When bidding on cocktail parties, Chavez adds 15% markup to yield a price of about DH31 per guest.
She is confident about her estimates of the cost of the food and beverages but is not as comfortable with the estimates of overhead costs.
The DH 13.96 overhead costs per labor hours was determined by dividing total overhead expenses to the las 12 months by total labor hours for the same period.
Monthly data concerning overhead costs and labor hours follows: Month Labor Hours Overhead Expense
January 2,500 DH 55,000
February 2,800 59,000
March 3,000 60,000
April 4,200 64,000
May 4,500 67,000
June 5,500 71,000
July 6,500 74,000
August 7,500 77,000
September 7,000 75,000
October 4,500 68,000
November 3,100 62,000
Dr. Sawsan Halbouni 3 December 6,500 73,000
Total 57,600 DH 805,000
Chavez has received a request to bid on a 180-guest fund raising cocktail party to be given next month by an important local charity.
The party would last the usual tree hours. She would like to win this contract because her guest list for this charity event includes many prominent individuals that she would like to land as future clients. Maria is confident lent event.
Required:
1. Prepare a Chavez Scatter graph plot that puts the labor-hours on the x-axis and the overhead expenditure on the Y-axis. What insights are reveals by your scatter graph?
2. Use the least squares regression method to estimate the fixed and variable components of the overhead expenses. Express theses estimates in the form Y = a + bX.
3. Estimate the contribution to profit of a standard 180 guest cocktail party of Chavez charges her usual price of DH 31 per guest. (In other words, by how much would her overall profit increase?)
4. How low could Chavez bill for the charity event in terms of price per guest and still not lose money on the event itself?
5. The individual who is organizing the client's fund-raising event has indicated that he has already received a bid under DH30 from another catering company.
Do you think Chavez should bid below her normal DH 31 per guest price for the charity event? Why?