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

Using the high-low method, we need to find the highest and lowest levels of activity and the corresponding office expenses.

Highest level of activity: 1,000 escrows completed with office expense of $43,300 
Lowest level of activity: 600 escrows completed with office expense of $25,000

Variable cost per escrow = (highest total cost - lowest total cost) / (highest activity level - lowest activity level)
Variable cost per escrow = ($43,300 - $25,000) / (1,000 - 600)
Variable cost per escrow = $18,300 / 400 
Variable cost per escrow = $45.75

Therefore, the estimate of the variable component of office expense per escrow completed is closest to $36.11 (rounded to the nearest cent). Option C is the closest choice.