Nation’s Capital Fitness, Inc. operates a chain of fitness centers in the Washin

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 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:

*Rounded

4-a. Compute the variable cost per hour and the fixed cost per hour at 630 hours of activity. (Round your answers to 2 decimal places.)

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.

Month Hours of Maintenance
Service Maintenance
Costs January 560 $ 5,520 February 470 4,260 March 260 2,820 April 500 4,280 May 340 2,970 June 460 4,170 July 350 3,060 August 410 3,590 September 470 3,970 October 370 3,290 November 370 3,250 December 350 3,110 Total 4,910 $ 44,290 Average 409 * $ 3,691 *

Explanation / Answer

hours maintenance cost high 560 5,520 low -260 -2,820 Difference 300 2,700 Variable cost per unit = 2700/300 9 fixed cost = 5520   - 560*9 480 Y= 480 + 9x $ per hour 4-a) Variable cost per hour 9 fixed cost per hour (480/630)= 0.76 4-b) Because it will change as the number of hour changes

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