Bailey Nickles, managing director of the

Victoria Contractors Group,

is examining how overhead costs behave with changes in monthly professional labour-hours billed to clients. Assume the following historical data:

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(Click the icon to view the data.)Required

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Requirement 1. Compute the linear cost function, relating total overhead cost to professional labour-hours, using the representative observations of

4,000

and

7,500

hours. Plot the linear cost function. Does the constant component of the cost function represent the fixed overhead costs of the

Victoria Contractors Group?

Why?Select the labels for the cost function using the representative observations of

4,000

and

7,500

hours.

y

=

$248,000

+

$38

X

Plot the line for the estimated cost function using the observations of

4,000

and

7,500

hours. Choose the correct answer below,

A.

010,0000600,000Pro. Lab-Hrs. BilledTot. OH Costs ($)

A coordinate plane has a horizontal axis labeled Professional Labour-Hours Billed from 0 to 10,000 in increments of 500 and a vertical axis labeled Total Overhead Costs in dollars from 0 to 600,000 in increments of 50,000. A line rises from left to right passing through the plotted points (4,000,$ 465,000) and (7,500,$ 535,000). All coordinates are approximate.

B.

010,0000600,000Pro. Lab-Hrs. BilledTot. OH Costs ($)

A coordinate plane has a horizontal axis labeled Professional Labour-Hours Billed from 0 to 10,000 in increments of 500 and a vertical axis labeled Total Overhead Costs in dollars from 0 to 600,000 in increments of 50,000. A line rises from left to right passing through the plotted points (4,000,$ 400,000) and (7,500,$ 600,000). All coordinates are approximate.

C.

010,0000600,000Pro. Lab-Hrs. BilledTot. OH Costs ($)

A coordinate plane has a horizontal axis labeled Professional Labour-Hours Billed from 0 to 10,000 in increments of 500 and a vertical axis labeled Total Overhead Costs in dollars from 0 to 600,000 in increments of 50,000. A line rises from left to right passing through the plotted points (4,000,$ 400,000) and (7,500,$ 535,000). All coordinates are approximate.Your answer is correct.

D.

010,0000600,000Pro. Lab-Hrs. BilledTot. OH Costs ($)

A coordinate plane has a horizontal axis labeled Professional Labour-Hours Billed from 0 to 10,000 in increments of 500 and a vertical axis labeled Total Overhead Costs in dollars from 0 to 600,000 in increments of 50,000. A line rises from left to right passing through the plotted points (3,000,$ 335,000) and (6,000,$ 405,000). All coordinates are approximate.The constant component of the cost function

does not

represent the fixed overhead cost of the

Victoria Contractors Group.

The constant component

provides

the best available starting point for a straight line that approximates how a cost behaves within the

3 comma 000 to 8 comma 5003,000 to 8,500

relevant range.Requirement 2. What would be the predicted total overhead costs for (a)

5,000

hours and (b)

8,500

hours using the cost function estimated in requirement 1? Plot the predicted costs and actual costs for

5,000

and

8,500

hours.

Calculate the predicted total overhead costs for the following hours using the cost function estimated in requirement 1.

Hours	Predicted Overhead Costs
5,000	$
8,500	$