Fixed costs are not included in the above computation because there is no indication that there would be any additional fixed costs incurred as a consequence of catering the cocktail party. If additional fixed costs were incurred, they should be subtracted from revenues as well to determine the profit of the party.
2. 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.
3. 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 lower than the normal bid of $31 might set a precedent for the future or it might embroil the company in 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 based on price or service is a delicate issue that Maria will have to decide after getting to know the personality and preferences of her customers.