Question

Hello team, I will cut and paste this:

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:

Month	Hours of Maintenance Service				Maintenance Costs
January		530			$	4,882
February		450				4,160
March		270				2,750
April		490				4,260
May		340				2,970
June		440				4,190
July		360				3,040
August		400				3,600
September		460				4,030
October		370				3,200
November		360				3,170
December		330				3,070
Total		4,800			$	43,322
Average		400	*		$	3,610	*
4-a. Compute the variable cost per hour and the fixed cost per hour at 630 hours of activity. (Round your answers to 2 decimal places.) ****HERE IS MY MATH********************

Variable Cost Per Unit = Difference in Total Cost

                                             Difference in Hours

                                    = $4882 - $2750 = 2132

                                    = 530 – 270 =         260

2132/260= 8.2 PER UNIT

FIXED COST = Total Costs – Variable Costs

= $4882 – ($8.20 x 530)

= $4882 – 4346

= 536

My question is, in order to figure this out at 630 hours of activity, do I do the same work above and just use 630 instead of 530?

Answer 1

	Hours of Maintenance Service	cost
Highest activity	530	4882
lowest activity	270	2750
change in activity	260	2132

variable cost per hour = change in cost /change in Hours of Maintenance
Service

                   = 2132 /260

                  = $ 8.20 per hours

Fixedcost : Total cost -variable cost

    = 4882 -[530*8.20]

       = 4882-4346

        = $ 536

At 630 hours ,

Variable cost per hour $ 8.20 per hour

Fixed cost per hour : 536 /630 = $ .85079 per hour

**variable cost remain constant per hour(it changes in totaity irrespective of level of activity and fixed cost remain constant in totality .so fixed cost will be $ 536 at 630 hours (it changes per hour )