Nation’s Capital Fitness, Inc. operates a chain of fitness centers in the Washin
ID: 2413148 • Letter: N
Question
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: Nation’s Capital Fitness, Inc. operates a chain of fitness centers in the Washington, D.C., area.
Data regarding the maintenance hours and costs for last year are as follows:
Monthly Hours of Maintenance Service Maintenance Costs
January 560 $ 5,264
February 450 $ 4,200
March 280 $2,800
April 470 $4,290
May 350 $2,990
June 450 $4,110
July 320 $3,050
August 430 $3,590
September 500 $4,040
October 380 $3,300
November 360 $3,170
December 360 $3,110
Total 4,910 $ 43,914
Average 409 * $ 3,660*
* *Rounded
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.)
What's the monthly
maintenance cost= +Explanation / Answer
Unit variable cost = (5264-2800)/(560-280)= $8.8 Fixed cost = 5264-(560*8.8)= $336 Maintenance cost=336+8.8X
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