COST-BASED PRICING, TARGET PRICING

Carina Franks operates a catering company in Austin, Texas. Carina provides food and servers for parties. She also rents tables, chairs, dinnerware, glassware, and linens. Estefan and Maria Montero have contacted Carina about plans for their soon-to-be 15- year-old daughter’s Quineanera (a festive party thrown by Hispanic parents to celebrate their daughters’ fifteenth birthdays). The Monteros would like a catered affair on the lawn of a rural church. They have requested an open bar, a sit-down dinner for 350 people, a large tent, and a dance floor. Of course, they expect Carina to supply serving staff, tables with linens, dinnerware, and glassware. They will handle the flowers, decorations, and hiring the band on their own. Carina put together this bid:

Food (350 X $25)	$ 8,750
Beverages (350 X $15)	5,250
Servers (6 X 4 hours X $10)	240
Bartenders (2 X 4 hours X $10)	80
Clean-up staff (3 X 3 hours X $10)	90
Rental of:
Dance floor	300
Linens	80
Tables	200
Dinnerware	120
Glassware	150
Total	$15,260

Required:

1. Explain where costs for Carina’s services and profit are calculated in the preceding bid.

2. Suppose that the Monteros blanch when they see the preceding bid. One of them suggests that they had hoped to spend no more than $10,000 or so on the party. How could Carina work with the Monteros to achieve a target cost of that amount?

3. Estefan Montero protests the cost of dance floor rental. He says, “I’ve seen those for rent at U-Rent-It for $75.” How would you respond to this remark if you were Carina? (Hint: You want this job so telling him “Go ahead and do it yourself, Cheapskate!” is not an option.)