Bob Jones owns a catering company that prepares banquets and parties for individual and corporate functions throughout the year. Jones's business is seasonal, with a heavy schedule during the summer and on year-end holidays and a light schedule the rest of the year. Fixed operating costs are incurred evenly throughout the year.

One of Jones's most requested functions is a cocktail party. Bob has developed the following costs per person for a standard cocktail party:

Food and beverages ......$15

Direct labor ..........$ 5

Variable overhead ......$ 2

Fixed overhead........ $ 5

Required

a. Based on absorption costing, what is Jones's cost per person? Based on variable costing, what is his cost per person?

b. Jones prices his cocktail parties by adding a 15% markup to his costs. What price will Jones charge per person if he uses absorption costing? If he uses variable costing?

c. Jones has been asked to bid on a 200-person cocktail party to be given next month.

What is the minimum price he should bid for the party? Why?