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			550				$	5,288
February			470					4,240
March			280					2,750
April			480					4,310
May			350					3,020
June			450					4,140
July			330					3,040
August			430					3,530
September			470					3,980
October			390					3,260
November			360					3,260
December			330					3,110
Total			4,890				$	43,928
Average			408	*			$	3,661	*

*Rounded

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-a. Compute the variable cost per hour and the fixed cost per hour at 610 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? multiple choice

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

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