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Nation's Capital Fitness, Inc. operates a chain of fitness centers in the Washington, D.C., area. The firm's

controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the firm's 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               520                                                 $4,745

February             460                                                 $4,260

March                  290                                                 $2,790

April                     480                                                 $4,310

May                     330                                                 $3,010

June                    440                                                 $4,100

July                     330                                                  $3,040

August                 420                                                  $3,510

September          470                                                  $4,040

October               370                                                  $3,300

November           350                                                  $3,220

December           370                                                  $3,060

Total                    4,830                                               $43,385

Average              403*                                                $3,615*


  1. Using the high-low method of cost estimation, estimate the behavior of the maintenance costs incurred by Nation's 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.)
  3. Compute the predicted maintenance cost at 650 hours of activity.
  4.  Compute the variable cost per hour and the fixed cost per hour at 660 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?

Top Answer

The answers are... View the full answer


Now , the Equation in form of Y= a+bX.
Maintainence Cost = Fixed Cost + (Variable Cost per Activity *Number of Activity )
= $ 325 + ( $8.50 * Number of Activity )
Cost of Predicted 650 hours are -...

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