Dana Rand owns a catering company that prepares banquets and parties for both individual and business functions throughout the year. Rands business is seasonal, with a heavy schedule during the summer months and the year-end holidays and a light schedule at other times. During peak periods, there are extra costs; however, even during nonpeak periods Rand must work more to cover her expenses.

One of the major events Rands customers request is a cocktail party. She offers a standard cocktail party and has developed the following cost structure on a per-person basis.

Food and beverages	$	12.00
Labor (0.7 hr. @ $10 per hour)		7.00
Overhead (0.7 hr. @ $12 per hour)		8.40
Total cost per person	$	27.40

When bidding on cocktail parties, Rand adds a 15 percent markup to this cost structure as a profit margin. Rand is quite certain about her estimates of the prime costs but is not as comfortable with the overhead estimate. This estimate was based on the actual data for the past 12 months presented in the following table. These data indicate that overhead expenses vary with the direct-labor hours expended. The $12 estimate was determined by dividing total overhead expended for the 12 months ($752,000) by total labor hours (61,300) and rounding to the nearest dollar.

Month	Labor Hours			Overhead Expenses
January		7,300		$	55,000
February		5,300			77,000
March		7,600			68,000
April		5,900			46,000
May		2,200			43,000
June		7,700			48,000
July		2,600			47,000
August		5,100			80,000
September		4,200			82,000
October		2,100			47,000
November		7,200			74,000
December		4,100			85,000
Total		61,300		$	752,000

Rand recently attended a meeting of the local chamber of commerce and heard a business consultant discuss regression analysis and its business applications. After the meeting, Rand decided to do a regression analysis of the overhead data she had collected. The following results were obtained.

Intercept (a)	54,000
Coefficient (b)	2

Required:

Using data from the regression analysis, develop the following cost estimates per person for a cocktail party. Assume that the level of activity remains within the relevant range.

Dana Rand has been asked to prepare a bid for a 270-person cocktail party to be given next month. Determine the minimum bid price that Rand should be willing to submit.

What other factors should Dana Rand consider in developing the bid price for the cocktail party?

What are the variable costs per person?

What are the absorption(full) costs per person?