Wuensch Inc., an escrow agent, has provided the following dataconcerning its off
ID: 2446487 • Letter: W
Question
Wuensch Inc., an escrow agent, has provided the following dataconcerning its office expenses:
Escrows Completed
Office Expenses
April
75
$7,800
May
125
$12,375
June
60
$6,240
July
100
$10,400
August
65
$6,760
September
62
$6,448
October
102
$10,608
November
50
$5,450
December
67
$6,968
Management believes that office expense is a mixed cost thatdepends on the number of escrows completed. Note: Real estatepurchases usually involve the services of an escrow agent thatholds funds and prepares documents to complete the transaction.
Using the high-low method, the estimate of the fixed componentof office expense per month is closest to:
$354
$952
$469
$833
Escrows Completed
Office Expenses
April
75
$7,800
May
125
$12,375
June
60
$6,240
July
100
$10,400
August
65
$6,760
September
62
$6,448
October
102
$10,608
November
50
$5,450
December
67
$6,968
Explanation / Answer
High Low Method of estimatingthe Fixed Cost Component Let the Variable Cost V Fixed Cost F The Lowest Escrows have been completed in November The highest Escrows have been completed in May. Hence , we get the following two equations 50V + F = 5450 125V + F = 12,375 Solving the two equations , we get F = 833.33 Hence, the answer is d. $833.
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