1. What insights are revealed by your scattergraph?

Maria is not comfortable with the estimate of overhead cost. Information is provided in the

case for labor hours and overhead expenses. The least-squares regression method can be used

to estimate the fixed and variable components of overhead expenses. You do not have to

compute this. Use the following results:

The cost formula, in the form Y = a + bX, using labor-hours as the activity base is $48,126 per

month plus $3.95 per labor-hour, or: Y = $48,126 + $3.95X

2. If Chavez charges her usual price of $31 per guest for the 180-guest cocktail party, how

much contribution margin will she earn by serving this event? Use the least-squares result

above. Show some simple calculations.

3. Should fixed costs in this instance be considered? Why or why not?

4. How low could Chavez bid for the charity event in terms of a price per guest and still break

even on the event itself? Consider the contribution margin.

5. The individual who is organizing the charitys fundraising event has indicated that he has

already received a bid under $30 from another catering company. Do you think Chavez

should bid below her normal $31 per guest price for the charity event? Why or why not?

6. If a lower price is considered what are the advantages and disadvantages of such a

decision?

D $15 $5 $6.99 $26.99 Overhead Expenses A A B C 1 Food and Beverages 2 Labor (0.5 hrs @ $10/hr) 3 Overhead (0.5 hrs @ $13.98/hr) 4 Total cost per guest 5 6 Month Labor Hours 7 8 January 2500 9 February 2800 10 March 3000 11 April 4200 12 May 4500 13 June 5500 14 July 6500 15 August 7500 16 September 7000 17 October 4500 18 November 3100 19 December 6500 20 21 Total 57600 $ 55,000.00 $ 59,000.00 $ 60,000.00 $ 64,000.00 $ 67,000.00 $ 71,000.00 $ 74,000.00 $ 77,000.00 $ 75,000.00 $ 68,000.00 $ 62,000.00 $ 73,000.00 $ 805,000.00 D $15 $5 $6.99 $26.99 Overhead Expenses A A B C 1 Food and Beverages 2 Labor (0.5 hrs @ $10/hr) 3 Overhead (0.5 hrs @ $13.98/hr) 4 Total cost per guest 5 6 Month Labor Hours 7 8 January 2500 9 February 2800 10 March 3000 11 April 4200 12 May 4500 13 June 5500 14 July 6500 15 August 7500 16 September 7000 17 October 4500 18 November 3100 19 December 6500 20 21 Total 57600 $ 55,000.00 $ 59,000.00 $ 60,000.00 $ 64,000.00 $ 67,000.00 $ 71,000.00 $ 74,000.00 $ 77,000.00 $ 75,000.00 $ 68,000.00 $ 62,000.00 $ 73,000.00 $ 805,000.00