Cardillo Inc., an escrow agent, has provided the following data concerning its office expenses: Management believes that office expense is a mixed cost that depends on the number of escrows completed. Note: Real estate purchases usually involve the services of an escrow agent that holds funds and prepares documents to complete the transaction.
Using the high-low method, the estimate of the variable component of office expense per escrow completed is closest to:
A)$26.75
B)$118.23
C)$36.11
D)$72.49

Question

Cardillo Inc., an escrow agent, has provided the following data concerning its office expenses:  Management believes that office expense is a mixed cost that depends on the number of escrows completed. Note: Real estate purchases usually involve the services of an escrow agent that holds funds and prepares documents to complete the transaction.
Using the high-low method, the estimate of the variable component of office expense per escrow completed is closest to:
A)$26.75 
B)$118.23 
C)$36.11 
D)$72.49

Quizplus · Accepted Answer

To use the high-low method, we need to first determine the highest and lowest levels of activity (number of escrows completed) and the corresponding office expenses.

From the given data, we can see that the highest level of activity is 850 escrows completed in September, with office expenses of $39,920. The lowest level of activity is 550 escrows completed in March, with office expenses of $22,200.

Using this information, we can calculate the variable cost per escrow by taking the difference in office expenses divided by the difference in activity:

Variable cost per escrow = (highest office expenses - lowest office expenses) / (highest activity - lowest activity)
Variable cost per escrow = ($39,920 - $22,200) / (850 - 550)
Variable cost per escrow = $17,720 / 300
Variable cost per escrow = $59.07

Therefore, the estimate of the variable component of office expense per escrow completed is closest to $59.07, which is closest to choice C ($36.11).