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.
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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 scatter graph 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 outliners? Does an outliner affect the high low estimate?