Problem 6-45 erpreting Regression alysis in Cost Estimation 0 6-1, 6-2, 6-5) Minimum bid for 200-person ocktail party: $4,400 Dana Rand owns a catering company that prepares banquets and parties for both individual and business functions throughout the year. Rand's 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 Rand's 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 Labor (.5 hr. @$10 per hour) Overhead (.5 hr. $14 per hour) Total cost per person $15 5 7 $27 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 $14 estimate was determined by dividing total overhead expended for the 12 months ($805,000) by total labor hours (57,600) and rounding to the nearest dollar. Month Labor Hours Overhead Expenses January 2,500 $55,000 February 2,800. 59,000 March 3,000 60,000 April 4,200 64,000 May 4,500 67,000 June 5,500 71,000 July 6,500 August 74,000 7,500 September 77,000 7,000 October 75,000 4,500 November 68,000 3,100 December 62,000 6,500 Total 73,000 57,600 $805,000