Question: The managing director of a consulting group has the following monthly data on total overhead costs and professional labor hours to bill to clients:
|
Overhead Costs
|
Billable Hours
|
|
$365,000
|
3,000
|
|
$400,000
|
4,000
|
|
$430,000
|
5,000
|
|
$477,000
|
6,000
|
|
$560,000
|
7,000
|
|
$587,000
|
8,000
|
a. Develop a trendline to identify the relationship between billable hours and overhead costs.
b. Interpret the coefficients of your regression model. Specifically, what does the fixed component of the model mean to the consulting firm?
c. If a special job requiring 1,000 billable hours that would contribute a margin of $38,000 before overhead was available, would the job be attractive?