Question
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
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 | 530 | $ | 5,136 | |||||||
February | 480 | 4,260 | ||||||||
March | 270 | 2,770 | ||||||||
April | 480 | 4,310 | ||||||||
May | 330 | 3,010 | ||||||||
June | 470 | 4,110 | ||||||||
July | 360 | 3,040 | ||||||||
August | 440 | 3,580 | ||||||||
September | 460 | 4,020 | ||||||||
October | 360 | 3,280 | ||||||||
November | 370 | 3,170 | ||||||||
December | 360 | 3,120 | ||||||||
Total | 4,910 | $ | 43,806 | |||||||
Average | 409 | * | $ | 3,651 | * | |||||
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 2 decimal places.)
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. (Round your answers to 2 decimal places.)
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