Compute the variable cost per hour

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Question - iberty Bell Fitness, Inc. operates a chain of fitness centers in Philadelphia. 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 5 a 1 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  525 $ 4,710

February 505 4,310

March  310 2,990

April  495 4,200

May 315 3,000

June 485 4,215

July 315 2,950

August 405 3,680

September 475 4,100

October 345 3,250

November 350 3,260

December 335 3,015

Total 4,860 $43,680

Average 405 $ 3,640

Required:

1. Using the high-low method of cost estimation, estimate the behavior of the maintenance costs incurred by Liberty Bell Fitness, Inc. Express the cost behavior pattern in equation form.

2. Using your answer to requirement (1), what is the variable component of the maintenance cost?

3. Compute the predicted maintenance cost at 600 hours of activity.

4. Compute the variable cost per hour and the fixed cost per hour at 610 hours of activity. Explain why the fixed cost per hour could be misleading.

Reference no: EM131632616

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