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CASE 5A-12 Analysis of Mixed Costs in a Pricing Decision L05-119 Maia 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 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: $ 15.00 Food and beverages Labor (0.5 hrs @ $10.00/hs) 5.00 Overhead (0 5 hrs @ $13 98/hr) 699 Total cost per guest 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 S31 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 tt total labor hours for the same period. Monthly data concerning overhead costs and labor-hours follow: Month Labor-Hours Expenses January2.500 55,000 February 2.800 59,000 3,000 60,000 4.20064,000 March 4,500 67,000 5,500 71,000 74,000 July 6,500

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