Managerial Accounting
17th Edition
ISBN: 9781260247787
Author: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Publisher: RENT MCG
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Textbook Question
Chapter 5.A, Problem 12C
CASE 5A-12 Analysis of Mixed Costs in a Pricing Decision LO5-11
Maria 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 holidays and a lighter 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:
Food and beverages.................................................$15.00
Labor (0.5 hrs. @ $10.00/hr.)…………………………………………………………………………………………………5.00
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 $31 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 by total labor-hours for the same period. Monthly data concerning overhead costs and labor-hours follow:
Chavez has received a request to bid on a 180-guest fundraising cocktail party to be given next month by an important local charity. (The party would last the usual three hours.) She would like to win this contract because the guest list for this charity event includes many prominent individuals that she would like to secure as future clients. Maria is confident that these potential customers would be favorably impressed by her company’s services at the charity event.
Required:
- Prepare a scatter graph plot that puts labor-hours on the X-axis and overhead expenses on the Y-axis. What insights are revealed by your scattergraph?
- Use the least-squares regression method to estimate the fixed and variable components of overhead expenses. Express these estimates in the form Y=a+bX.
- If Chavez charges her usual price of $31 per guest for the 180-guest cocktail party, how much contribution margin will she earn by serving this event?
- How low could Chavez bid for the charity event in terms of a price per guest and still break even on the event itself?
- The individual who is organizing the charity’s fundraising event has indicated that he has already received a bid under $30 from another catering company. Do you think Chavez should bid below her normal $31 per guest price for the charity event? Why or why not?
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Cost Behavior, High-Low Method, Pricing Decision
Fonseca, Ruiz, and Dunn is a large, local accounting firm located in a southwestern city. Carlos Ruiz, one of the firm's founders, appreciates the success his firm has enjoyed and wants to give something back to his community. He believes that an inexpensive accounting services clinic could provide basic accounting services for small businesses located in the barrio. He wants to price the services at cost.
Since the clinic is brand new, it has no experience to go on. Carlos decided to operate the clinic for 2 months before determining how much to charge per hour on an ongoing basis. As a temporary measure, the clinic adopted an hourly charge of $25, half the amount charged by Fonseca, Ruiz, and Dunn for professional services.
The accounting services clinic opened on January 1. During January, the clinic had 120 hours of professional service. During February, the activity was 150 hours. Costs for these two levels of activity usage are as…
Question 3
Angie March owns a catering company that stages banquets and parties for both individuals and companies. The business is seasonal, with heavy demand during the summer months and year-end
holidays and light demand at other times. Angie has gathered the following cost information from the past year:
Month
January
February
March
April
May
June
July
August
September
October
November
December
Total
▼(a)
Labor Hours Overhead Costs
3,500
2,800
3,000
4,200
4,500
5,500
6,500
7,500
7,800
4,500
Variable cost = $
x
3,100
6,500
59,400
Your answer is partially correct. Try again.
Using the high-low method, compute the overhead cost per labor hour and the fixed overhead cost per month. (Round variable cost to 2 decimal places, e.g. 52.75 and all other answers to 0
decimal places, e.g. 5,275.)
Fixed cost = $
$73,000
69,080
70,000
77,000
80,000
87,000
91,000
96,000
99,580
81,000
73,000
90,000
$986,660
6.1
per labor hour
Claudia wants to perform a break-even analysis on
her very busy casual-dining operation. She has
obtained the following operating results from last
month's income statement and POS system sales
records:
Guests served:
Sales:
Variable costs:
Fixed costs:
Total costs:
Profit:
25,000
$210,000
$75,000
$110,000
$185,000
$25,000
Chapter 5 Solutions
Managerial Accounting
Ch. 5.A - EXERCISE 5A-1 High-Low Method LO5-10 The Cheyenne...Ch. 5.A - EXERCISE 5A-2 Least-Squares Regression LO5-11...Ch. 5.A - EXERCISE 5A-3 Cost Behavior; High-Low Method...Ch. 5.A - Prob. 4ECh. 5.A - EXERCISE 5A-5 Least-Squares Regression LO5-11...Ch. 5.A - Prob. 6PCh. 5.A - Problem 5A-7 Cost Behavior; High-Low Method;...Ch. 5.A - Problem 5A-8 High-Low Method; Predicting Cost...Ch. 5.A - Prob. 9PCh. 5.A - Prob. 10P
Ch. 5.A - Case 5A-11 Mixed Cost Analysis and the Relevant...Ch. 5.A - CASE 5A-12 Analysis of Mixed Costs in a Pricing...Ch. 5 - Prob. 1QCh. 5 - Often the most direct route to a business decision...Ch. 5 - Prob. 3QCh. 5 - What is the meaning of operating leverage?Ch. 5 - What is the meaning of break-even point?Ch. 5 - 5-6 In response to a request from your immediate...Ch. 5 - Prob. 7QCh. 5 - Prob. 8QCh. 5 - Prob. 9QCh. 5 - Prob. 1AECh. 5 - Prob. 2AECh. 5 - Prob. 3AECh. 5 - Prob. 4AECh. 5 - Prob. 5AECh. 5 - Prob. 1F15Ch. 5 - Prob. 2F15Ch. 5 - Prob. 3F15Ch. 5 - Prob. 4F15Ch. 5 - Prob. 5F15Ch. 5 - Prob. 6F15Ch. 5 - Prob. 7F15Ch. 5 - Prob. 8F15Ch. 5 - Prob. 9F15Ch. 5 - Prob. 10F15Ch. 5 - Prob. 11F15Ch. 5 - Prob. 12F15Ch. 5 - Prob. 13F15Ch. 5 - Prob. 14F15Ch. 5 - Prob. 15F15Ch. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Prob. 3ECh. 5 - Prob. 4ECh. 5 - Prob. 5ECh. 5 - Prob. 6ECh. 5 - Prob. 7ECh. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - EXERCISE 5-10 Multiproduct Break-Even Analysis...Ch. 5 - Prob. 11ECh. 5 - EXERCISE 5-12 Multiproduct Break-Even Analysis...Ch. 5 - EXERCISE 5-13 Changes in Selling Price, Sales...Ch. 5 - Prob. 14ECh. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Prob. 17ECh. 5 - Prob. 18ECh. 5 - Prob. 19PCh. 5 - PROBLEM 5-20 CVP Applications: Break-Even...Ch. 5 - PROBLEM 5-21 Sales Mix; Multiproduct Break-Even...Ch. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - Prob. 25PCh. 5 -
PROBLEM 5-26 CVP Applications; Break-Even...Ch. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 -
PROBLEM 5-31 Interpretive Questions on the CVP...Ch. 5 - Prob. 32C
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