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			$	4,915
February		450				4,220
March		280				2,790
April		450				4,260
May		360				2,960
June		460				4,180
July		340				3,030
August		410				3,510
September		460				4,000
October		390				3,230
November		380				3,250
December		330				3,130
Total		4,840			$	43,475
Average		403	*		$	3,623	*

*Rounded

rev: 05_30_2018_QC_CS-128090

1. 4-a. Compute the variable cost per hour and the fixed cost per hour at 620 hours of activity. (Round your answers to 2 decimal places.)

1. 4-b. Why is the fixed cost per hour possibly misleading?

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

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