The following information applies to the questions displayed below.]

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			$	4,830
February		490				4,180
March		280				2,730
April		490				4,300
May		320				3,010
June		450				4,160
July		360				3,060
August		420				3,530
September		480				4,050
October		390				3,270
November		360				3,160
December		330				3,100
Total		4,900			$	43,380
Average		408	*		$	3,615	*

*Rounded

rev: 05_30_2018_QC_CS-128090

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.)

Monthly maintenance cost =

+

X

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 costper hour

3. Compute the predicted maintenance cost at 660 hours of activity.

1. 4-a. Compute the variable cost per hour and the fixed cost per hour at 670 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 change as the number of hours changes.

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