Reference no: EM131639828

Question - You are a cost management consultant and you have been asked by a small business owner for business advice.

Your client owns a chain of small, local operations that support larger caterers for special events.

Your client provides the tents for outside events, the soft drinks and snacks for the children of events, along with floral and other decorative arrangements.

This kind of business is extremely competitive and your client would like to know how far she can lower her prices without losing money.

Currently, the chain of operations has $22,500,000 of revenue from 5,000 events that they have serviced.

The cost data she can provide you includes:

Floral costs, $200 per event,

Table arrangements, $100 per event,

Soft drinks and children snacks, $500 per event,

Annual allocated costs of tents and other structures, $500,000,

Annual allocated costs of trucks and vehicles, $2,000,000,

Annual costs related to maintaining permanent staff, $3,500,000,

Wage for temporary staff (paid per event), $1,800 per event.

You begin your analysis, of course, with a break-even calculation.

Provide an accurate solution.

Provide a narrative that defines and discusses the purpose of assigning cost categories of fixed and variable costs.

Provide a narrative that defines and discusses the relationship of variable costs to contribution margin.

Provide a narrative that discusses the limitations of the data.

Provide a narrative that speculates what data is missing from the case.