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...
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