Problem 3 (Linear Cost Approximation)isProfessional Labor-HoursBilled to Clients3,0004,0005,000TotalOverhead CostsP340,000400,000435,000477,000529,000587,000binenin 7,0008,000ubainRequired:1. Compute the linear cost function, relating total overhead cost toprofessional labor-hours, using the representative observations of 4,000and 7,000 hours. Plot the linear cost function.component of the cost function represent the fixed overhead costs of theABS Consulting Group? Why?2. What would be the predicted total overhead costs for (a) 5,000 hours, and(b) 8,000 hours using the cost function estimated in requirement 1? Plotthe predicted costs and actual costs for 5,000 and 8,000 hours.Does the constant 3. Lopez had a chance to accept a special job that would have boostedprofessional labor-hours from 4,000 to 5,000 hours. Suppose Lopez,guided by the linear cost function, rejected this job because it would havebrought a total increase in contribution margin of P38,000, beforededucting the predicted increase in total overhead cost, P43,000. What isthe total contribution margin actually forgone?

A linear cost model is a mathematical tool used by organizations to calculate total costs for a…

Answered: Tita Lopez, managing director of the…

Business

Accounting

Tita Lopez, managing director of the ABS Professional Lai Billed to C 3,000 4,000 Total Overhead Costs P340,000

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 24E: Refer to the data in Exercise 7.22. The support departments are ranked in order of highest cost to...

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