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 . . . . . . . . . . . $12.00

Direct labor                . . . . . . . . . . . $   4.00

Variable overhead    . . . . . . . . . . . $   1.50

Fixed overhead         . . . . . . . . . . . $   4.50

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 30% markup to his product 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 150-person cocktail party to be given next month. What is the  minimum price he should bid for the party? Why?