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

Quizplus · Accepted Answer

To use the high-low method, we need to find the highest and lowest levels of activity and their corresponding costs. Let's assume the following data for office expenses and escrows completed:

Highest activity level: 500 escrows completed
Office expenses: $20,000
Lowest activity level: 100 escrows completed
Office expenses: $5,000

Using this information, we can find the variable cost per escrow completed as follows:

Variable cost per escrow = (Highest cost - Lowest cost) ÷ (Highest activity level - Lowest activity level)
Variable cost per escrow = ($20,000 - $5,000) ÷ (500 - 100)
Variable cost per escrow = $15,000 ÷ 400
Variable cost per escrow = $37.50

Therefore, the estimate of the variable component of office expense per escrow completed is closest to $36.11 (option C), which is the closest rounded number to $37.50.

Using the High-Low Method, the Estimate of the Variable Component