Total Overhead Costs Physician Contact Hours Billed to Patients $ 90,000 150 105,000 200 111,000 250 125,000 300 137,000 350 150,000 400 1. Compute the linear cost function, relating total overhead costs to physician contact hours, using the representative observations of 200 and 300 hours. Plot the linear cost function. Does the constant com- ponent of the cost function represent the fixed overhead costs of Young and Associates? Why? 2. What would be the predicted total overhead costs for (a) 150 hours and (b) 400 hours using the cost function estimated in requirement 1? Plot the predicted costs and actual costs for 150 and 400 hours. 3. Dr. Young had a chance to do some school physicals that would have boosted physician contact hours billed to patients from 200 to 250 hours. Suppose Dr. Young, guided by the linear cost function, rejected this job because it would have brought a total increase in contribution margin of $9,000, before deduct- ing the predicted increase in total overhead cost, $10,000. What is the total contribution margin actually forgone? Required

Total Overhead Costs Physician Contact Hours Billed to Patients $ 90,000 150 105,000 200 111,000 250 125,000 300 137,000 350 150,000 400 1. Compute the linear cost function, relating total overhead costs to physician contact hours, using the representative observations of 200 and 300 hours. Plot the linear cost function. Does the constant com- ponent of the cost function represent the fixed overhead costs of Young and Associates? Why? 2. What would be the predicted total overhead costs for (a) 150 hours and (b) 400 hours using the cost function estimated in requirement 1? Plot the predicted costs and actual costs for 150 and 400 hours. 3. Dr. Young had a chance to do some school physicals that would have boosted physician contact hours billed to patients from 200 to 250 hours. Suppose Dr. Young, guided by the linear cost function, rejected this job because it would have brought a total increase in contribution margin of $9,000, before deduct- ing the predicted increase in total overhead cost, $10,000. What is the total contribution margin actually forgone? Required

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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