Bailey Nickles, managing director of the Vancouver Consulting Group, is examining how overhead costs behave with changes in monthly professional labour-hours billed to clients. Assume the following historical data:

Total			Professional Labour-Hours
Overhead Costs			Billed to Clients
	$330,000			3,000
	400,000			4,000
	425,000			5,000
	467,000			6,000
	510,000			6,500
	577,000			7,500

Required as follows:

1. Compute the linear cost function, relating total overhead cost to professional labour-hours, using the representative observations of 4,000 and 6,500 hours. Plot the linear cost function. Does the constant component of the cost function represent the fixed overhead costs of the Vancouver Consulting Group? Why?

2. What would be the predicted total overhead costs for (a) 5,000 hours and (b) 7,500 hours using the cost function estimated in requirement 1? Plot the predicted costs and actual costs for 5,000 and 7,500 hours.

3. Nickles had a chance to accept a special job that would have boosted professional labour-hours from 4,000 to 5,000 hours. Suppose Nickles, guided by the linear cost function, rejected this job because it would have brought a total increase in contribution margin of $39,000, before deducting the predicted increase in total overhead cost, $44,000. What is the actual total contribution margin forgone?