FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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e. what is the estimating equation for total cost based on number of clients implied by these results
1. Total cost= $75,500 + ($436.80 x number of clients)
2.Total cost= $75,500 + ($403.20 x number of clients)
3. Total cost= $75,500 + ($50.40 x number of counseling hours)
Transcribed Image Text:b. What is the total administrative cost for an estimated activity level of 5,450 counseling hours?
$100,280
O $75,500
O $24,780
O $175,780
O Some other amount
c. What is the total estimated variable cost per client (assuming that counseling costs are variable costs)?
$596.60
$476.60
$340.60
O $220.60
O Some other amount
d. What is the expected contribution margin per client to be earned?
O $635.60
O $488.40
O $515.60
O $368.40
O Some other amount
Transcribed Image Text:Talon Services offers standardized job counseling services. The company is planning a new service line targeted to active seniors who
are retiring and looking forward to a new career. The service will sell for a flat $965 per client and will consist of a standardized
offering. The service will consist of a total of 9 hours with a counseling specialist and a battery of tests to assess interests and
aptitudes. Counseling specialists, who are contract employees, are paid $34 per hour. The testing is estimated to cost $125 per client.
Administrative costs for the new service have not been estimated, but the company has collected information on counseling hours and
administrative costs for other services over the past 15 months. The following is a summary of a simple regression of administrative
costs on counseling hours:
Simple Regression Analysis Results.
Dependent variable-Administrative costs (monthly)
Independent variable-Counseling hours (monthly)
Computed values
Intercept
Coefficient on independent variable
Coefficient of correlation
R2
$ 75,500
$18.40
0.860
0.722
Required:
a. What percentage of the variation in administrative costs is explained by the independent variable?
O 86.0%
O 72.2%
O 94.6%
O 51.1%
O Some other amount
b. What is the total administrative cost for an estimated activity level of 5.450 counseling hours?
Expert Solution
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Step 1
a. The estimating equation for total cost based on the number of clients implied by these results is:
Total cost = $75,500 + ($436.80 x number of clients) (Option 1)
or
Total cost = $75,500 + ($403.20 x number of clients) (Option 2)
Since both options provide estimating equations for total cost based on the number of clients, either of them can be used.
b. To find the total administrative cost for an estimated activity level of 5,450 counseling hours, we need to use the estimating equation for administrative costs based on counseling hours:
Administrative costs = $75,500 + ($18.40 x counseling hours)
Substituting counseling hours with 5,450:
Administrative costs = $75,500 + ($18.40 x 5,450)
Administrative costs = $175,780
Therefore, the total administrative cost for an estimated activity level of 5,450 counseling hours is $175,780. Option D is correct.
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