Note the "problem" is attached (Catering Company). Note this is Cost Accounting. Note, I have the professor answer key for this problem. I want to make sure this problem (along with 4 additional problems) is answered correctly prior to providing problems where I do not have the answer key. If you do not understand "Cost Accounting" do NOT accept these questions, if the answers provided by you are wrong I will NOT accept them.

Questions:

1) Estimate both variable overhead per labor hour and fixed overhead using the high/low method.

2) Using the best information available, estimate the contribution to profit of a standard 180-guest cocktail party if Lee charges her usual price of $45 per guest. (In other words, how much would her overall profit increase?)

3) How low could Lee bid for the charity event in terms of price per guest and still not lose money on the event itself?

4) The individual who is organizing the charity?s fund-raising event has indicated that he already received a bid under $42 from another catering company. Do you think Lee should bid below her normal $45 per guest price for the charity event? Why or why not?

Jasmine Lee owns a catering company that serves food and beverages at parties and business functions. Lee'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 Lee'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 hours @ $10.00 / hour) Overhead (0.5 hours @ $13.98 hour) Total cost per guest $15.00 $5.00 $6.99 $26.99 The standard cocktail party lasts three hours and Lee 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. Lee normally charges a price of $45 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 March April May June July August September October November December Totals Labor Hours 2,500 2,800 3,000 4,200 4,500 5,500 6,500 7,500 7,000 4,500 3,100 6,500 57,600 Overhead Expenses $55,000 $59,000 $60,000 $64,000 $67,000 $71,000 $74,000 $77,000 $75,000 $68,000 $62,000 $73,000 $805,000 Lee has received a request to bid on a 180-guest fund-raising 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 land as future clients. Jasmine is confident that these potential customers would be favorably impressed by her company's services at the charity event. Regression analysis run on overhead expenses and labor hours yielded a slope of 3.95 and an intercept of 48,126. Required: 1) Estimate both variable overhead per labor hour and fixed overhead using the high/low method. 2) Using the best information available, estimate the contribution to profit of a standard 180-guest cocktail party if Lee charges her usual price of $45 per guest. (In other words, how much would her overall profit increase?) 3) How low could Lee bid for the charity event in terms of price per guest and still not lose money on the event itself? 4) The individual who is organizing the charity's fund-raising event has indicated that he already received a bid under $42 from another catering company. Do you think Lee should bid below her normal $45 per guest price for the charity event? Why or why not? Sportway, Inc. Sportway, Inc., is a wholesale distributor supplying a wide range of moderately priced sporting equipment to large chain stores. About 60 percent of Sportway's products are purchased from other companies, while the remaining products are manufactured by Sportway. The company's Plastics Department is currently manufacturing molded fishing tackle boxes. Sportway is able to manufacture and sell 8,000 tackle boxes annually, making full use of its direct labor capacity at available workstations. Following are the selling price and costs associated with Sportway's tackle boxes. Selling price per box Costs per box: Molded plastic Hinges, latches, handle Direct labor ($15/hour) Manufacturing overhead Selling and administrative expenses Profit per box $86.00 $8.00 9.00 18.75 12.50 17.00 65.25 $20.75 Because Sportway believes it could sell 12,000 tackle boxes if it had sufficient manufacturing capacity, the company has looked into the possibility of purchasing the tackle boxes for distribution. Maple Products, a steady supplier of quality products, would be able to provide up to 9,000 tackle boxes per year at a price of $68 per box delivered to Sportway's facility. Bart Johnson, Sportway's product manager, has suggested that the company could make better use of its Plastics Department by manufacturing skateboards. To support his position, Bart has a market study that indicates an expanding market for skateboards and a need for additional suppliers. He believes that Sportway could expect to sell 17,500 skateboards annually at a price of $45 per skateboard. Bart's estimate of the costs to manufacture the skateboards follows: Selling price per skateboard Costs per skateboard: Molded plastic $5.50 Wheels, hardware 7.00 Direct labor ($15/hour) 7.50 Manufacturing overhead 5.00 Selling and administrative expenses 9.00 1 $45.00 34.00 Profit per skateboard $11.00 In the Plastic Department, Sportway uses direct labor hours as the application base for manufacturing overhead. Included in the manufacturing overhead for the current year is $50,000 of factory-wide, fixed manufacturing overhead that has been allocated to the Plastics Department. For each unit of product that Sportway sells, regardless of whether the product has been purchased or is manufactured by Sportway, an allocated $6 fixed overhead cost per unit for distribution is included in the selling and administrative expenses for all products. Total selling and administrative expenses for the purchased tackle boxes would be $10 per unit. Required: 1) Prepare an analysis based on the data presented that will show which product or products Sportway, Inc., should manufacture and/or purchase in order to maximize the company's profitability. It should also show the associated financial impact. Support your answer with appropriate calculations. 2) Discuss some qualitative factors that might affect Sportway's decision. 2