FreshRoll Catering provides a “Deluxe Roller” service that has proven to be popu

Question

FreshRoll Catering provides a “Deluxe Roller” service that has proven to be popular and attracts many repeat customers. FreshRoll provides high quality ingredients and the specially trained staff help guests roll sushi while enjoying cocktails and other preparedappetizers. The business is seasonal, with a heavy schedule during the summer months and holidays and a lighter schedule at other times.

The usual price per guest for the Deluxe Roller is $54. FreshRoll has estimated the cost per guest for the Deluxe Roller service asfollows:
Direct costs:
Food $ 13.00
Drink $ 6.00
Labor ( 1 hour x $18) $ 18.00
Overhead costs:
Rent (1 hr. x $1.67) $ 1.67
Miscellaneous (1 hr. x 7.15 ) $ 7.15
Total cost per guest $ 45.82
Labor includes food preparation and service. Here is the detail of how the one-hour for labor in the table above was computed: FreshRoll provides 1 server/tutor for every 4 guests so that is .75 hours per guest for an average 3-hour party. Another .25 hours per guest is needed for the food preparation. These workers are hired only as needed and are paid only for the hours they actually work. (The detail is for background only. You can trust my computation of 1-hour per guest.)
Management believes that the direct costs above are reasonably reliable. To compute the overhead costs per hour used above (Rent and Miscellaneous), management used the following summary of costs and labor hours over the last year. (Example : Total miscellaneous OH cost/total labor hours = $7.15 per labor hour.) Miscellaneous overhead includes accounting and legal costs, utilities, supplies and other miscellaneous items.
Month LaborHours Misc OH Costs Rent Costs
January 2,500 28,000 8,000
February 2,800 28,400 8,000
March 3,000 30,000 8,000
April 4,200 34,800 8,000
May 4,500 32,300 8,000
June 5,500 35,000 8,000
July 6,500 38,600 8,000
August 7,500 41,800 8,000
September 7,000 38,000 8,000
October 4,500 34,000 8,000
November 3,100 32,000 8,000
December 6,500 39,000 8,000
Total 57,600 411,900 96,000
Per labor hour 7.15 1.67
Part A.
1. Classify each type of cost (food, beverage, rent and miscellaneous) as variable, fixed or mixed.
2. Provide the best formula for estimating the miscellaneous overhead costs, given the limited information available to you. Round any costs per guest to the nearest penny. Your formula should be in the form: Y = vx + F, where you replace v and F with a number. State the approach you used (High-low, regression, or scattergraph) to derive your answer and why you chose that method. Briefly discuss the advantages of this formula over the average cost of $7.15/guest that FreshRoll initially used.
3. Compute the contribution margin per guest for the Deluxe Roller service (using the best approach, of course). Show each item you included in the computation. Round this to the nearest penny.
4. Assume in January, FreshRoll plans to cater for 3,000 guests. Prepare a projected contribution margin style income statement for January. This should be in good form. (Exhibit 16-5 is a good example.) Assume a tax rate of 20%. (Income tax is not a variable cost. We only classify the costs used to arrive at net income before tax). Round income statement amounts to the nearest dollar. Use separate lines for different types of costs so that it is clear to me what you have included and clearly label the contribution margin and net income before tax.
5. FreshRoll needs an after tax profit of $20,000 in January. How many guests do they need to serve?
Part B. The company has received a request to bid on a 120-guest fund-raising Deluxe Roller event to be given in January Year2 by an important local charity. (The party would last the usual three hours.) The guest list for this charity event includes many prominent individuals that management would like to land as future clients. Management is confident that these potential customers would be favorably impressed by the company's services at the charity event. The individual who is organizing the charity's fund-raising event has indicated that they have already received a bid of $44 from another catering company for a similar style event.
6. How low could FreshRoll bid for the charity event, in terms of a price per guest, and still not lose money on the event itself?
7. Do you think FreshRoll should bid below the normal $54 per guest price for the charity event? Provide arguments for and against a low bid. State your final decision.
Part C. For this part only, assume FreshRoll’s total fixed costs (from all sources) in July are now predicted to be $48,000. Assume your answer to question 3 above (contribution margin per unit for a deluxe service guest) is $12 per guest. Assume FreshRoll has added a Standard service with simpler food and no beverages. All of the food is prepared ahead of time and the total labor time per guest is only .5 hours. The usual price for the Standard service is $29 per guest and you have computed a contribution margin per guest of $9 per guest.
8. Assume that in July Year2, FreshRoll plans to serve 2,000 Standard guests and 6,000 Deluxe Roller guests. Compute breakeven revenue for FreshRoll in July, assuming that sales mix.
9. Assume that FreshRoll learns in August that many of its employees are leaving to begin their own business in another state. As a result, FreshRoll predicts there will only be 3,000 total labor hours available in August. The projected demand in August is the same amount projected for July. How many guests of each type of party should FreshRoll plan to serve to maximize profits?
Please clearly label your answers to 1-9. Show work for any computational item.

FreshRoll Catering provides a "Deluxe Roller service that has proven to be popular and attracts many repeat customers. FreshRoll provides high quality ingredients and the specially trained staff help guests roll sushi while enjoying cocktails and other prepared appetizers. The business is seasonal, with a heavy schedule during the summer months and holidays and a lighter schedule at other times The usual price per guest for the Deluxe Roller is $54. FreshRoll has estimated the cost per guest for the Deluxe Roller service as follows Direct costs $13.00 $ 6.00 18.00 Food Drink Labor (1 Overhead costs 1.67 Miscellaneous (1 hr. x 7.157.15 $45.82 Rent (1 hr. x$1.67) Total cost per guest Labor includes food preparation and service. Here is the detail of how the one-hour for labor in the table above was computed: FreshRoll provides 1 server/tutor for every 4 guests so that is.75 hours per guest for an average 3-hour party. Another 25 hours per guest is needed for the food preparation. These workers are hired only as needed and are paid only for the hours they actually work (The detail is for background only. You can trust my computation of 1-hour per guest.) Management elieves that the direct costs above are reasonably reliable. To compute the overhead costs per hour used above (Rent and Miscellaneous), management used the following summary of costs and labor hours over the last year. (Example: Total miscellaneous OH cost/total labor hours . $7.15 per labor hour.) Miscellaneous overhead includes accounting and legal costs, utilities, supplies and other miscellaneous items. LaborHours Misc OH Costs Rent Costs 2.800 March 3,000 8,000 Apri 200 34,800 2,300 June 8,000 8,600 1,800 7.500 7,000 tober 411,900 Total Per labor hour

Explanation / Answer

Part A

1. Classification of Costs

Food - Variable

Beverage - Variable

Rent - Mixed

Miscelleneous - Mixed

2. High low method is easy to understand but it has to be seen is seen that is relatively unreliable because it only considers the extreme situations and assume the normal level of activity to lie evenly within the two extreme poles. But it can give us the fair estimate enough to have a rough idea of production activity.

As per this method,

the variable cost per unit is

y2 - y1/x2-x1

where, y2 is the total cost at highest level of activity

  y1 is the total cost at lowest level of activity

  x2 are the number of units/labor hours etc. at highest level of activity

  x2 are the number of units/labor hours etc. at highest level of activity

Accordingly, variable cost per unit is = (41800 - 28000) / (7500-3000) = 3.06 per unit

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.