Valentina Gonzales from Spain started her own catering company ten years ago. The busines idea of the company is to organize parties for private people and businesses where it serves food and beverages. Gonzales operates on a seasonal basis, at the company is especially busy during the summer months and holidays. Cocktail parties in particular are in high demand among Gonzales' customers. The charge per guest for a standard cocktail party is calculated as follows:

The standard cocktail party has a duration of four hours and Gonzales hires one worker for every five guests, so that works out to 0.6 hours of labour per guest. These workers are hired only as needed and are paid only for the hours they actually work.
When tendering for cocktail parties, Gonzales adds 18% markup to yield a price of about €32,5 per guest. She is certain about her estimates of the costs of food and beverages and labour, but is unsure about the estimated overhead cost. The €12.55 overhead cost per labour hour was calculated by dividing the last 12 months overhead costs by total labour hours for the same period. Monthly data concerning overhead costs and labour/ hours appear below:

Gonzales has received a request to tender for a 175-guest charity cocktail party to be given next month by an important local organization (the party is expected to last the expected three hours). She is motivated to win this contract; the guest list for the charity event includes many prominent individuals she would like to collaborate with in the future. Gonzales expects that these potential clients would be favourably impressed by her company's service at the charity event.

Required

1. Estimate the contribution to profit of a standard 175-guest cocktail party if Gonzales charges her usual price of €32.5 per guest.
2. How low could Gonzales bid for the charity event in regard to price per guest and still break even?
3. The person who is organizing the charity's fund-raising event has indicated that he has already received a bit under €30 from another catering company. Do you think Gonzales should bid below her normal €32.5 per guest price for the charity event?

Transcribed Image Text:

Food and beverage Labour (0.6 hrs @ €10.00/hr) Overhead (0.6 hrs @ €12.55/hr) Total cost per guest €14.00 6.00 7.53 €27.53