High-Low Cost Estimation
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liberty_bell_fitness.docx|
Liberty 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 = 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 |
|
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 |
|
|
|
|
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. |
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Monthly Maintenance Cost =_______________+_________________x
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3. |
Compute the predicted maintenance cost at 600 hours of activity. |
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Compute the variable cost per hour and the fixed cost per hour at 610 hours of activity. (Round "Fixed cost per hour" to 2 decimal places.) |
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