Question

Required:

1/ Variable Cost

2/ Fixed Cost

3/ Total cost 600 hours

Problem 6-38 Capital Fitness, Inc. operates a chain of fitness centres in the Ottawa area. The firm's controller is ac- umulating data to be used in preparing its annual profit plan for the coming year. The cost behaviour attern of the firm's equipment maintenance costs must be determined. The accounting staff has sug- ested the use of an equation, in the form of Y = a + bx, for maintenance costs. Data regarding the naintenance hours and costs for last year are as follows: Hours of Maintenance Month Maintenance Service Costs January.. 525 $ 4,710 February 505 4,310 March 310 2,990 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 S43,680 Average..... 405 S 3,640 April. 495

Answer 1

Problem 6-38

1)Variable cost per hour is $8 per hour

2) Fixed cost is $510

3) Total cost for 600 hour is $5310

Calculation

High low level is the technique which split data into variable and fixed cost by considering cost of Higher activity and the lower activity of given data.

Based on High low level

Variable cost per hour = Difference in Highest Activity cost to Lowest Activity Cost ÷ Difference in Highest Activity to Lowest Acitivity.

Highest hour is 525 and lowest is 310 , with total cost $4710 and 2990 respectively

Variable cost per hour =(4710-2990)/(525-310)

=1720/215

=8 per hours

Fixed cost

total cost with highest number of hour = Fixed cost + Variable cost per hour × hughest number of hours

FIXED COST = Total cost - Total variable cost

=4710 -( 525×8)

=4710 - 4200

Fixed Cost = $510

Total cost for 600 hours = Fixed cost + number of hours × variable cost per hour

=510+(600×8)

=$5310

Please specify if any other method is required .