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		560			$	5,470
February		460				4,220
March		280				2,810
April		490				4,270
May		310				3,040
June		440				4,180
July		340				3,020
August		420				3,600
September		460				3,950
October		380				3,210
November		380				3,230
December		340				3,120
Total		4,860			$	44,120
Average		405	*		$	3,677	*

*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.)

Variable maintenance cost per hour:

3. Compute the predicted maintenance cost at 690 hours of activity.

Maintenance cost:

4-a. Compute the variable cost per hour and the fixed cost per hour at 700 hours of activity. (Round your answers to 2 decimal places.)

Variable Cost per Hour:

Fixed Cost per Hour:

4-b. Why is the fixed cost per hour possibly misleading? (Choose One)

• Because it will change as the number of hours changes.

• Because it will not change as the number of hours changes.

Monthly maintenance cost +