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 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 34,800 2,300 8,600 Apri 200 June 8,000 7.500 7,000 1,800 tober 411,900 Total Per labor hour

Explanation / Answer

1 CLASSIFICATION OF COSTS Food Variable Drink Variable Labor Variable Rent Fixed Misselaneous Overhead Mixed 2 Best Formula for estimating miscellaneous overhead cost: Regression analysis with least square method will be the best formual Y=vx+F Sum (Y)=nF+v*Sum(x) Sum(xY)=F*Sum(x)+v*Sum(x^2) n=number of readings=12 x Y Predicted cost Month (Labor hour) Misc OH xY (x^2) as per regression equation January 2500 28000 70000000 6250000 28798 February 2800 28400 79520000 7840000 29518 March 3000 30000 90000000 9000000 29998 April 4200 34800 146160000 17640000 32878 May 4500 32300 145350000 20250000 33598 June 5500 35000 192500000 30250000 35998 July 6500 38600 250900000 42250000 38398 August 7500 41800 313500000 56250000 40798 September 7000 38000 266000000 49000000 39598 October 4500 34000 153000000 20250000 33598 november 3100 32000 99200000 9610000 30238 December 6500 39000 253500000 42250000 38398 Total 57600 411900 2059630000 310840000 Sum(x) Sum(Y) 411900=12F+v*57600 2059630000=F*57600+v*310840000 34325 Equal to F+ 4800*v 35757.47 Equal to F+ 5396.53v 1432.47 Equal to v* 596.53 v= 2.40 F= 34325- 2.40*4800 F= 22799 The equation will be: Y=2.40x+22799 You will get the same result by using excel data analysis tool of Regression Output of excel Regression is given below: SUMMARY OUTPUT Regression Statistics Multiple R 0.963067025 R Square 0.927498094 Adjusted R Square 0.920247903 Standard Error 1244.509478 Observations 12 ANOVA df SS MS F Significance F Regression 1 198134461.6 198134462 127.9274084 5.08627E-07 Residual 10 15488038.42 1548803.84 Total 11 213622500 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 22798.57392 1080.561421 21.0988228 1.27143E-09 20390.93305 25206.21 20390.93 25206.21 X Variable 1 2.401338766 0.212310577 11.3104999 5.08627E-07 1.928281322 2.874396 1.928281 2.874396 Intercept is value of F= 22798.57392 X variable is value ofv= 2.401338766 This formula helps in predicting Misc Overhead cost more accurately 3 CONTRIBUTION MARGIN PER GUEST Price $54 Variable cost: Food $13 Drink $6 Labor $18 Variable Overhead(1*2.4) $2.40 Total variable cost $39.40 Contribution Margin per guest $14.60 4 INCOME STATEMENT Number of guests 3000 Sales Revenue $162,000 (54*3000) Variable costs Food $39,000 Drink $18,000 Labor $54,000 Variable Overhead(1*2.4) $7,200 Total variable cost $118,200 TotalContribution Margin $43,800 Fixed costs: Rent $8,000 Fixed Overhead $22,799 Total Fixed Cost $30,799 Income from operations $13,001 (43800-30799) Income tax(20%) $2,600 Net Income from operations $10,401

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