As the new manager of a local fitness club, Fitness-for-Life, you have been studying the club’s financial data. You would like to determine how the club’s costs behave in order to make accurate predictions for next year. Here is information from the last six months:

Requirements:

1. By looking at the Total Operating Costs and the Average Operating Costs per Member, can you tell whether the club’s operating costs are variable, fixed, or mixed?
Explain your answer.
2. Use the high-low method to determine the club’s monthly operating cost equation.
3. Using your answer from Requirement 2, predict total monthly operating costs if the club has 600 members.
4. Can you predict total monthly operating costs if the club has 3,000 members? Explain your answer.
5. Prepare the club’s traditional income statement and its contribution margin income statement for the month of July. Assume that your cost equation from Requirement 2 accurately describes the club’s cost behavior. The club charges members \($30\) per month for unlimited access to its facilities.
6. Perform regression analysis using Excel. What is the monthly operating cost equation? What is the R-squared value? Why is the cost equation different from that in Requirement 2?

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A B Club Membership C Total Operating Average Operating D 1 Month (number of members) Costs Cost per Member 2 July 450 3 August 480 4 September 500 5 October 550 6 November 560 7 December 525 SSSSSS $ 8,900 $ 19.78 9,800 $ 20.42 $ 10,100 $ 20.20 $ 10,150 $ 18.45 10,500 $ 18.75 $ 10,200 $ 19.43 8