Answered: Nation’s Capital Fitness, Inc. operates…

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter28: Statistics And Linear Regression (stats)

Section: Chapter Questions

Problem 1R

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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: (image below)

Required:
1. Using the high-low method of cost estimation, estimate the behavior of the maintenance costs incurred by Nation’s Capital 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 590 hours of activity.
4. Compute the variable cost per hour and the fixed cost per hour at 600 hours of activity. Explain why the fixed cost per hour could be misleading.
(CMA, adapted)

I Problem 6-38
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 account-
ing staff has suggested the use of an equation, in the form of Y = a + bX, for maintenance costs. Data
High-Low Method; Fitness
Centers
(LO 6-1, 6-2, 6-5)
3. Cost prediction at 590
hours of activity, mainte-
nance cost: $4,995
regarding the maintenance hours and costs for last year are as follows:
Hours of
Maintenance
Month
Maintenance Service
Costs
January
520
$ 4,470
February
490
4,260
March
300
2,820
Аpril
500
4,350
May
310
2,960
June
480
4,200
July
320
3,000
August
400
3,600
September
470
4,050
October
350
3,300
November
340
3,160
December
320
3,030
Total
4,800
$43,200
Average
400
$ 3,600
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