Wuensch Incorporated, 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:

Question

Wuensch Incorporated, 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:

Quizplus · Accepted Answer

To use the high-low method, we need to identify the highest and lowest values of both the activity level (number of escrows completed) and the total cost.

From the given data, the highest total cost was $15,820 for 298 escrows completed, and the lowest total cost was $9,880 for 142 escrows completed.

Using these values, we can calculate the variable cost per escrow as follows:

Variable cost per escrow = (highest total cost - lowest total cost) / (highest activity level - lowest activity level)

Variable cost per escrow = ($15,820 - $9,880) / (298 - 142)

Variable cost per escrow = $5,940 / 156

Variable cost per escrow = $38.08

Therefore, the estimated variable component of the office expense per escrow completed is closest to $42.76 ($38.08 rounded up to the nearest cent).

The correct answer is B.

Wuensch Incorporated, an Escrow Agent, Has Provided the Following Data