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High-Low Method, Scattergraph, Break-Even Analysis [LO 2, 3] FirstTown Mortgage specializes in providing mortgage refinance loans. Each loan customer is charged a $500 loan processing

High-Low Method, Scattergraph, Break-Even Analysis [LO 2, 3]

FirstTown Mortgage specializes in providing mortgage refinance loans. Each loan customer is charged a $500 loan processing fee by FirstTown when the loan is processed. FirstTown's costs over the past year associated with processing the loans follow:

Loans Processed

Cost

January

190

$50,030

February

170

48,550

March

200

50,810

April

211

51,012

May

235

52,012

June

285

54,530

July

310

55,725

August

240

54,420

September

219

51,180

October

185

49,700

November

175

49,000

December

180

49,290

Required

a.

Use the high-low method to estimate fixed and variable costs.

b.

Based on these estimates, calculate the number of loans that must be made to break even. (Round to the nearest whole unit.)

c.

Estimate total profit in a month when 275 loans are processed. (Round to the nearest dollar.)

d.

Prepare a scattergraph of loan processing cost (vertical axis) and number of loans processed (horizontal axis).

e.

Comment on whether the high-low method produces a reasonable estimate of costs. Look at whether the relationship between the number of loans processed and the cost is linear. Are there any outliers? Does an outlier affect the high-low estimate?

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