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Yellow Theory, Inc. operates a chain of fitness centres in the Montreal area. The firm's...

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Accounting

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Yellow Theory, Inc. operates a chain of fitness centres in the Montreal area. The firm's VP of Finance 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 predict equipment maintenance costs. Data for the most recent 12 months of activity is outlined in Table A. Table A Hours of Maintenance Maintenance Month Service Costs January 520 $4,470 February 490 4,260 March 300 2,820 April 500 4,250 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 $43,100 a) Using the high-low method of cost estimation, estimate the behavior of the maintenance costs incurred by Yellow Theory Fitness. Express the cost behavior pattern in equation form. b) Using your answer to requirement a), what is the variable component of the maintenance cost? c) Compute the predicted maintenance cost at 590 hours of activity. d) 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

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