Question

assignmens Required information The following information applies to the questions displayed below 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 Hours of Maintenance Maintenance ServiceCosts 560 480 280 500 340 480 360 410 480 350 350 340 $ 4,994 4,200 2,810 4,270 2,960 4,140 3,000 3,520 3, 970 3, 230 3,260 3,080 $43,434 January March April Hay June July August September October November December Total 4,930 411 Average s 3,620* 4-a Compute the variable cost per hour and the fixed cost per hour at 670 hours of activity. (Round your answers to decimal places.) Variable cost per hour Fxed cost per hour 4-b. Why is the fixed cost per hour possibly misleading? Because it will not change as the number of hours changes Because it will change as the number of hours changes

Answer 1

4.a

Variable Cost per hour	7.8
Fixed cost per hour	0.93

Notes:
According to High Low method
Variable cost per unit=	Cost at highest level of activity- Cost at lowest level of activity/Hours at highest level of activity-Hours at highest level of activity
	$ 4994-2810/560-280
	7.8
Total Fixed Cost	Total cost-Variable cost per hour* No of hours
	$ 4994-7.8*560
	626
Fixed cost per hour	Total fixed cost/Hours of activity
	$ 626/670 hours
	0.93

4.b Because it will change as the number of hours changes.
Since fixed cost remain same it changes with the level of output.