Case Study: Analysis of Mixed Costs in a Pricing Decision Christine Dandra owns a catering company that serves food and beverages at exclusive parties and business functions. Dandra'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 that Dandra's customers request is a cocktail party. She offers a standard cocktail party and has estimated the cost per guest for this type of party as follows: Food and beverages Labour (0.5 hour @ $15.00 per hour) Overhead (0.5 hour @ $20.50 per hour) Total cost per guest $19.00 $ 7.50 $10.25 $36.75 The standard cocktail party lasts three hours and Dandra hires one worker for every six guests, which one half-hour of labour per guest. These workers are hired only as needed and are paid only for the hours they actually work. Dandra ordinarily charges $50 per guest. She is confident about her estimates of the costs of food and beverages and labour but is not as comfortable with the estimate of overhead cost. The $20.50 overhead cost per labour hour was determined by dividing total overhead expenses for the past 12 months by the total labour hours for the same period. Monthly data concerning overhead costs and labour hours appear below. Month Labour Hours Overhead Expenses January 1,500 $48,400 February 1,560 47,620 March 1,800 52,800 April 2,520 56,320 May 2,700 58,960 June 3,300 62,480 July 3,900 65,120 August 4,500 67,750 September 4,200 66,000 October 2,700 59,840 November 1,860 54,560 December 3,900 64,240 1. Estimate the contribution to profit of a standard 200-guest cocktail party if Dandra charges her usual price of $50 per guest. (In other words, by how much would her overall profit increase as a result of this party?). Show your calculations clearly. 2. How low could Dandra bid for the charity event, in terms of a price per guest, and still not lose money on the event itself? Again, please show your calculations clearly. 3. The individual who is organizating the chartiy's fundraising event has indicated that he has already received a bid under $45 from another catering company. Do you think Dandra should bid below her normal $50 per guest for the charity event? Why or why not? Please ensure you show all calculations, and label the calculation components. For example: Total cost per guest (19.00 +7.50 +10.25 =) $36.75 The example immediately above shows the calculation, but does not label the components. The total cost per guest shown in the body of the question above is much better - it's very clear and easy to understand