8. The fixed cost of the banquet department of a hotel is $350 a day. A customer selected a menu for 100 persons that would have a food cost of $6.50 per person, a variable wage cost of $2.75 per person, and other variable costs of $1.25 per person. a. Calculate the total cost per person if this banquet were booked. b. What should be the total selling price (sales revenue) and the price per person if a 20% operating income on sales revenue is wanted? c. The customer does not want to pay more than $13.75 per person for this function. She is a good customer; she has booked many functions in the banquet room in the past and is expected to do so in the future. The function is three days from now, and there is no likelihood you will be able to book the room for any other function. Explain why you would, or would not, accept the $13.75 per-person price. (Note: Assume
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
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