Nations Capital Fitness, Inc. operates a chain of fitness centers in the Washington, D.C., area. 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 suggested the use of the high-low method to develop an equation, in the form of Y = a + 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		540			$	5,090
February		480				4,160
March		250				2,770
April		490				4,280
May		350				3,030
June		470				4,130
July		330				3,050
August		430				3,520
September		460				4,010
October		350				3,210
November		360				3,220
December		350				3,040
Total		4,860			$	43,510
Average		405	*		$	3,626	*

*Rounded

Required:

1. Using the high-low method of cost estimation, estimate the behavior of the maintenance costs incurred by Nations Capital Fitness, Inc. Express the cost behavior pattern in equation form. (Round coefficient of X to 2 decimal places and other answer to the nearest whole dollar amount.)

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

3. Compute the predicted maintenance cost at 680 hours of activity.

   1. Compute the variable cost per hour and the fixed cost per hour at 690 hours of activity. (Round your answers to 2 decimal places.)

      - Why is the fixed cost per hour possibly misleading? a. Because it will not change as the number of hours changes OR b. Because it will change as the number of hours changes.