Linear cost approximation. Terry Lawler, managing director of the Winnipeg Consulting Group, is examining how overhead costs behave with variations in monthly professional labour-hours billed to clients. Assume the following historical data:

Total Professional Labour-Hours Overhead Costs Billed to Clients

$408,000 3,000 480,000 4,000 522,000 5,000 572,400 6,000 634,800 7,000 704,400 8,000 Required 1. Compute the linear cost function, relating total overhead cost to professional labourhours, using the representative observations of4,000 and 7,000 hours. Plot the linear cost function. Does the constant component of the cost function represent the fixed over¬
head costs ofthe Winnipeg 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? Plot the predicted costs and actual costs for 5,000 and 8,000 hours.
3. Lawler had a chance to accept a special job that would have boosted professional labourhours from 4,000 to 5,000 hours. Suppose Lawler, guided by the linear cost function, rejected this job because it would have brought a total increase in contribution margin of $45,600, before deducting the predicted increase in total overhead cost, $51,600. What is the actual total contribution margin forgone?