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?