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Randolph Dana owns a catering company that prepares banquets and parties for business functions throughout the year. Dana's business is seasonal, with a heavy schedule during the summer months and the year-end holidays. During peak periods there are extra costs; however, even during nonpeak periods Dana must work more to cover his expenses. One of the major events Dana's customers request is a cocktail party. He offers a standard cocktail party and has developed the following cost structure on a per-person basis.

When bidding on cocktail parties, Dana adds a 15 percent markup to this cost structure as a profit margin. Dana is quite certain about his estimates of the food and beverage and labor 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 appear to vary with the direct-labor hours expended. The $14 per hour overhead estimate was determined by dividing total overhead expended for the 12 months by total labor hours and rounding to the nearest dollar.

Required:

1. Use the High Low method to estimate the fixed and variable cost components of overhead. Express this estimate in the form Y= a + bX

2. Use the linear regression approach to estimate the fixed and variable cost components of overhead. Express this estimate in the form Y= a + bX

3. Which of the three approaches (that is, the $14 per hour, hi-low, or regression) to estimating overhead cost would you recommend to Dana and why?

4. Dana has been asked to prepare a bid for a 250-person cocktail party to be given next month. Determine the minimum bid price that Dana should be willing to submit.

5. What other factors do you think Dana should consider in developing the bid price for the cocktail party?

Food and beverages... Labor (6 hr. $11 per ho Overhead (6hr.$14 per houn. Total cost per person $14.00 6.60 8.40 $29.00

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