(Appendix 5A) Wuensch 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 fixed component of office expense per month is closest to:
A) $7,685
B) $7,182
C) $6,678
D) $5,182

Question

(Appendix 5A) Wuensch 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 fixed component of office expense per month is closest to:
A) $7,685 
B) $7,182 
C) $6,678 
D) $5,182

Quizplus · Accepted Answer

11ea7761_188c_91a2_81a5_659459c3e205_TB2580_00 Variable cost per unit = Change in cost ÷ Change in activity
= $2,523 ÷ 59 escrows
= $42.76 per escrow
Total fixed cost = Total cost - Variable cost element
= $9,201 - ($42.76 per escrow × 94 escrows)
= $9,201 - $4,019
= $5,182