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 account- ing staff has suggested the use of 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:

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. Using your answer to requirement (1), what is the variable component of the maintenance cost? Compute the predicted maintenance cost at 590 hours of activity. Compute the variable cost per hour and the fixed cost per hour at 600 hours of activity. Explain why the fixed cost per hour could be misleading.

Hours of Maintenance Service Maintenance Costs Month 520 490 300 500 310 January February March April May June July August September October November 480 320 $ 4,470 4,260 2,820 4,350 2,960 4,200 3,000 3,600 4,050 3,300 3,160 3,030 $43,200 $ 3,600 400 470 350 340 December 320 Total 4,800 Average 400