iberty Bell Fitness, Inc. operates a chain of fitness centers in Philadelphia. The firms controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the firms equipment maintenance costs must be determined. The accounting staff has sug- gested the use of an equation, in the form of Y 5 a 1 bX, for maintenance costs. Data regarding the maintenance hours and costs for last year are as follows:

Month

Hours of Maintenance Service

Maintenance Costs

January ...................................................

525..........................................................

$ 4,710

February .................................................

505..........................................................

4,310

March .....................................................

310..........................................................

2,990

April ........................................................

495..........................................................

4,200

May........................................................

315..........................................................

3,000

June.......................................................

485..........................................................

4,215

July .........................................................

315..........................................................

2,950

August ....................................................

405..........................................................

3,680

September ..............................................

475..........................................................

4,100

October ...................................................

345..........................................................

3,250

November ...............................................

350..........................................................

3,260

December ...............................................

335.........................................................

3,015

Total ........................................................

4,860.......................................................

$43,680

Average ...................................................

405..........................................................

$ 3,640

Required:

1.Using the high-low method of cost estimation, estimate the behavior of the maintenance costs incurred by Liberty Bell Fitness, Inc. Express the cost behavior pattern in equation form.

2.Using your answer to requirement (1), what is the variable component of the maintenance cost?

3.Compute the predicted maintenance cost at 600 hours of activity.

4.Compute the variable cost per hour and the fixed cost per hour at 610 hours of activity. Explain why the fixed cost per hour could be misleading.