Dr. Huckvale, of and Huckvale & Associates, LLP, is examining how overhead costs behave as a function of monthly physician contact hours billed to patients. The historical data are as follows: Total Overhead Costs Physician Contact Hours Billed to Patients $92,000 170 112,000 220 113,000 270 127,000 270 139,000 370 152,000 420 Compute the linear cost function, relating total overhead costs to physician contact hours, using the representative observations of 220 and 270 hours. Plot the linear cost function. Does the constant component of the cost function represent the fixed overhead costs of Huckvale and Associates? Why? What would be the predicted total overhead costs for 170 hours and 420 hours using the cost function estimated in requirement 1? Plot the predicted costs and actual costs for 170 and 420 hours. Dr. Huckvale had a chance to do some school physicals that would have boosted physician contact hours billed to patients from 220 to 270 hours. Suppose Dr. Huckvale, 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?
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Dr. Huckvale, of and Huckvale & Associates, LLP, is examining how overhead costs behave as a function of monthly physician contact hours billed to patients. The historical data are as follows:
Total Overhead Costs Physician Contact Hours Billed to Patients
$92,000 170
112,000 220
113,000 270
127,000 270
139,000 370
152,000 420
Compute the linear cost function, relating total overhead costs to physician contact hours, using the representative observations of 220 and 270 hours. Plot the linear cost function. Does the constant component of the cost function represent the fixed overhead costs of Huckvale and Associates? Why? What would be the predicted total overhead costs for 170 hours and 420 hours using the cost function estimated in requirement 1? Plot the predicted costs and actual costs for 170 and 420 hours. Dr. Huckvale had a chance to do some school physicals that would have boosted physician contact hours billed to patients from 220 to 270 hours. Suppose Dr. Huckvale, 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?
