1. Compute the linear cost function, relating total overhead costs to physician contact hours, using the representative observations of 210 and 260 hours. Plot the linear cost function. Does the constant component of the cost function represent the fixed overhead costs of Reidy and Associates? Why?

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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Requirements
1. Compute the linear cost function, relating total overhead costs to physician contact hours, using
the representative observations of 210 and 260 hours. Plot the linear cost function. Does the
constant component of the cost function represent the fixed overhead costs of Reidy
and Associates? Why?
2. What would be the predicted total overhead costs for (a) 160 hours and (b) 410 hours using the
cost function estimated in requirement 1? Plot the predicted costs and actual costs for 160 and
410 hours.
3. Dr. Reidy had a chance to do some school physicals that would have boosted physician contact
hours billed to patients from 210 to 260 hours. Suppose Dr. Reidy, guided by the linear
cost function, rejected this job because it would have brought a total increase in contribution
margin of $10,000, before deducting the predicted increase in total overhead cost, $15,000. What
is the total contribution margin actually forgone?
Transcribed Image Text:Requirements 1. Compute the linear cost function, relating total overhead costs to physician contact hours, using the representative observations of 210 and 260 hours. Plot the linear cost function. Does the constant component of the cost function represent the fixed overhead costs of Reidy and Associates? Why? 2. What would be the predicted total overhead costs for (a) 160 hours and (b) 410 hours using the cost function estimated in requirement 1? Plot the predicted costs and actual costs for 160 and 410 hours. 3. Dr. Reidy had a chance to do some school physicals that would have boosted physician contact hours billed to patients from 210 to 260 hours. Suppose Dr. Reidy, guided by the linear cost function, rejected this job because it would have brought a total increase in contribution margin of $10,000, before deducting the predicted increase in total overhead cost, $15,000. What is the total contribution margin actually forgone?
Data table
Total Overhead
Costs
$
88,000
108,000
109,000
123,000
135,000
148,000
Physician Contact Hours
Billed to Patients
160
210
260
260
360
410
Transcribed Image Text:Data table Total Overhead Costs $ 88,000 108,000 109,000 123,000 135,000 148,000 Physician Contact Hours Billed to Patients 160 210 260 260 360 410
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