Case 5A-12 (Static) Analysis of Mixed Costs in a Pricing Decision [LO5-11] [The following information applies to the questions displayed below.] 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 times. One of the major events Chavez's customers request is a cocktail party. She offers a standard cocktail party and has estimated the cost per guest as follows: Food and beverages Labor (0.5 hour @ $10.00/hour) Overhead (0.5 hour @ $13.98/hour) Total cost per guest $ 15.00 5.00 6.99 $ 26.99 The standard cocktail party lasts three hours and Chavez hires one worker for every six guests, so that works out to one- half hour of labor per guest. These workers are hired only as needed and are paid only for the hours they actually work. When bidding on cocktail parties, Chavez adds a 15% markup to yield a price of about $31 per guest. She is confident about her estimates of the costs of food and beverages and labor but is not as comfortable with the estimate of overhead cost. The $13.98 overhead cost per labor-hour was determined by dividing total overhead expenses for the last 12 months by total labor-hours for the same period. Monthly data concerning overhead costs and labor-hours follow: Month January February Labor-Hours Overhead Expenses 2,500 $ 55,000 2,800 59,000 March April 3,000 60,000 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 6,500 57,600 73,000 $ 805,000 December Total Chavez has received a request to bid on a 180-guest fundraising cocktail party to be given next month by an important local charity. (The party would last the usual three hours.) She would like to win this contract because the guest list for this charity event includes many prominent individuals that she would like to secure as future clients. Maria is confident that these potential customers would be favorably impressed by her company's services at the charity event. 2-a. Use the least-squares regression method to estimate the fixed and variable components of overhead expenses. 2-b. Express these estimates in the form Y = a + bx. Complete this question by entering your answers in the tabs below. Req 2A Req 2B Use the least-squares regression method to estimate the fixed and variable components of overhead expenses. (Round the Variable cost to 2 decimal places and Fixed Cost to the nearest whole dollar amount.) Fixed cost per month Variable cost per hour < Req 2A Req 2B > 2-a. Use the least-squares regression method to estimate the fixed and variable components of overhead expenses. 2-b. Express these estimates in the form Y = a + bx. Complete this question by entering your answers in the tabs below. Req 2A Req 2B Express these estimates in the form Y = a + bx. (Round the Variable cost to 2 decimal places and Fixed Cost to the nearest whole dollar amount.) Y = < Req 2A Req 2B > Case 5A-12 Part 3 (Static) 3. 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? (Round your intermediate calculations and final answer to 2 decimal places.) Total contribution margin Case 5A-12 Part 4 (Static) 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? (Round your answer to the nearest whole dollar amount.) Bid price per guest