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

Using your answer to requirement (1), what is the variable component of the maintenance cost? (Round your answer to two decimal places.)

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

Maintenance Costs Hours of Maintenance Service High activity level 5520 560 Low activity level 2820 260 Change 2700 300 Variable component of the maintenance cost = 2700/300 = $9

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