Carla Boyne's Catering Company
Contributions to Profit
The high-low method throws away most of the data and bases the estimates of variable and fixed costs on data for only two months. For that reason, it is a decidedly inferior method in this situation (Craig, 1998). Nevertheless, if the high-low method were used, the estimates would be computed as follows:
Labor Hours Overhead Expenses ($)
Highest level of activity 7500 77000
Lowest level of activity 2500 55000
Change 5000 22000
Variable Cost = $4.40 per labor-hour
Fixed Cost Element = Total cost -- Variable cost element
= $77,000 -- ($4.40 per labor-hour x 7,500 labor-hours)
= $44,000
The total variable cost per guest is computed as follows:
Food and Beverages
$15.00
Labor (0.5-hour x $10.00 per hour)
$5.00
Overhead (0.5-hour x $3.95 per hour)
$1.98
Total Variable Cost per Guest
$21.98
And the total contribution from 180 guests paying $31 each...
[ View Full Essay]