Question

Big Time Investor Group is opening an office in Portland, Oregon, Fixed monthly costs are office rent ($8,000), depreciation on office furniture ($1,800), utilities ($2,000), special telephone lines ($1.000), a connection with an online brokerage service ($2,600), and the salary of a financial planner ($19,600). Variable costs include payments to the financial planner (9% of revenue), advertising (11% of revenue), supplies and postage (4% of revenue), and usage fees for the telephone lines and computerized brokerage service (6% of revenue). Read the requirements X Requirement 1. Use the contribution margin ratio approach to compute Big Time's breakeven revenue in dollars. If the average trade leads to $1,000 in revenue for Big Time, how many trades must be made to break even? Begin by showing the formula and th breviation used: CM = contribution margin.) i Requirements Fixed costs + Target profi 350000 1. Use the contribution margin ratio approach to compute Big Time's breakeven revenue in dollars. If the average trade leads to $1,000 in revenue for Big Time must make 50 tral Big Time, how many trades must be made to break even? 2. Use the equation approach to compute the dollar revenues needed to eam a Requirement 2. Use the equation ap monthly target profit of $12,600. Begin by selecting the formula to con 3. Graph Big Time's CVP relationships. Assume that an average trade leads to $1,000 in revenue for Big Time Show the breakeven point, the sales revenue line, the fixed cost line, the total cost line, the operating loss area, the operating income area, and the sales in units (trades) and dollars when monthly operating income of $12,600 is earned. 4. Suppose that the average revenue Big Time earns increases to $2,000 per ry - Stud trade. Compute the new brookeven point in trades. How does this affect the breakeven point? (Round your answers to the nearest whole number) Click the graph, choose a tool in the cial you Print Done

Answer 1

Scroll Side ways to see complete answer Q - 1
Contribution margin % = 1 - Variable cost as % of sales = 1 - financial planner cost ​- advertising - supplies and postage ​- usage fees for the telephone lines and computerized brokerage service = 1 - 9% - 11% - 4% - 6% = 70%
Fixed costs = Office rent ​+ depreciation on office furniture left parenthesis + utilities ​+ special telephone lines ​+ a connection with an online brokerage service ​+ and the salary of a financial planner = 8,000​ + 1,800 + 2,000 + 1,000 + 2,600 + 19,600 = $ 35,000
Big Time​'s monthly breakeven revenue in dollars = Monthly fixed costs / Contribution margin % = 35,000 / 70% = $ 50,000
Trades needed to breakeven monthly = 50,000 / 1,000 = 50
Q - 2
Equation for profit:
Profit = (1 - Variable cost as % of sales) x Revenue - Fixed costs
12,600 = (1 - 30%) x Revenue - 35,000
Hence, Revenue = (12,600 + 35,000) / (1 - 30%) = $ 68,000
Q - 3
The CVP relationship can be plotted using the table below:
	Number of trades	Sales	Fixed cost	Total Cost
	n	=1000 x n		=Sales x (1 - 30%) - Fixed cost
	-	-	35,000	35,000
	10	10,000	35,000	38,000
	20	20,000	35,000	41,000
	30	30,000	35,000	44,000
	40	40,000	35,000	47,000
	50	50,000	35,000	50,000
	60	60,000	35,000	53,000
	70	70,000	35,000	56,000
	80	80,000	35,000	59,000
	90	90,000	35,000	62,000
	100	100,000	35,000	65,000
The graph is shown below:
Point A is the break even point. Area shaded in red line is the area of operating losses. Area shaded in green line is area of operating profit.
Q - 4
Average revenue per trade = $ 2,000 which is twice the average revenue per trade initially. Hence the break even number of trades will reduce to half. New break even trade number = 50,000 / 2,000 = 25
CVP Plot 120000 100000 80000 60000 40000 ZZZ 20000 o 10 20 30 40 70 80 90 100 110 50 60 Number of trades - Sales Fixed cost - Total Cost