Note that the r 2 is approximately 096 which means

Note that the R
2
is approximately 0.96, which means that 96%
of the variation in cost is explained by labor-hours. This is a
very high R 2 which indicates a very good fit.
3. Using the least-squares regression estimate of the variable
overhead cost, the total variable cost per guest is computed as
follows:
Food and beverages ........................ $15.00
Labor (0.5 hour @ $10 per hour) ..... 5.00
Overhead (0.5 hour @ $3.95 per
hour) ............................................ 1.98
Total variable cost per guest ........... $21.98
The total contribution from 180 guests paying $31 each is
computed as follows:
Sales (180 guests @ $31.00 per guest) ......
$5,580.0
0
Variable cost (180 guests @ $21.98 per
guest) ....................................................... 3,956.40
Contribution to profit ..................................
$1,623.6
0
Fixed costs are not included in the above computation because
there is no indication that any additional fixed costs would be
incurred as a consequence of catering the cocktail party. If
additional fixed costs were incurred, they should also be
subtracted from revenue.
4. Assuming that no additional fixed costs are incurred as a result
of catering the charity event, any price greater than the
variable cost per guest of roughly $22 would contribute to
profits.
5. We would favor bidding slightly less than $30 to get the

contract. Any bid above $22 would contribute to profits and a
bid at the normal price of $31 is unlikely to land the contract.
And apart from the contribution to profit, catering the event
would show off the company’s capabilities to potential clients.
The danger is that a price that is lower than the normal bid of
$31 might set a precedent for the future or it might initiate a
price war among caterers. However, the price need not be
publicized and the lower price could be justified to future
clients because this is a charity event. Another possibility
would be for Maria to maintain her normal price but throw in
additional services at no cost to the customer. Whether to
compete on price or service is a delicate issue that Maria will
have to decide after getting to know the personality and
preferences of the customer.