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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 $ 4,603

February 480 4,200

March 300 2,740

April 460 4,280

May 320 2,970

June 440 4,110

July 330 3,070

August 430 3,560

September 470 4,010

October 390 3,250

November 350 3,220

December 360 3,110

Total 4,860 $ 43,123

Average 405 * $ 3,594 *

*Rounded

4-a. Compute the variable cost per hour and the fixed cost per hour at 640 hours of activity. (Round your answers to 2 decimal places.)

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

multiple choice

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

Because it will change as the number of hours changes.