Reference no: EM131765002
Problem - Jasmine Lee owns a catering company that serves food and beverages at exclusive 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 that Lee's customers request is a cocktail party. She offers a standard cocktail party and has estimated the cost per guest for this party as follows:
Food and Beverages $17.00
Labor (0.5 hour @ $10.00 per hour 5.00
Overhead (0.5 hour @ $18.63 per hour) 9.32
Total cost per guest $31.32
The standard cocktail part lasts three hours and Lee hires A worker for every six guests which is 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 ordinarily charges $45 per guest. She is confident about her estimates of the costs of the foods and beverages and labor, but is not as comfortable with the estimate of overhead cost. The $18.63 overhead cost per labor-hour was determined by dividing total overhead expenses for the last 12 months by the total labor-hours for the same period. Monthly data concerning overhead costs and labor-hours appear below.
Month Labor Hours Overhead Expenses
January 1,500 $ 44,000
Februar 1,680 47,200
March 1,800 48,000
April 2,520 51,200
May 2,700 53,600
June 3,300 56,800
July 3,900 59,200
August 4,500 61,600
Septembe 4,200 60,000
October 2,700 54,400
November 1,860 49,600
December 3,900 58,400
Total 34,560 $644,000
Lee has received a request to bid on a 120-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 really like to win this contract; the guest list for this charity event includes many prominent individuals she would like to land as future clients. Lee is confident that these potential customers would be favorably impressed by her company's services at the charity event.
REQUIRED:
1. Estimate the profit of a standard 120-guest cocktail party if Lee charges her usual price of $45 per guest.
2. How low could Lee bid for the charity event, in terms of a price per guest, and still not lose money on the event itself?
3. The individual who is organizing the charity's fund-raising event has indicated that he has 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?