Big TimeBig Time Investor Group is opening an office in Portland, Oregon. Fixed monthly costs are office rent ($$8,900), depreciation on office furniture left parenthesis $($1,700), utilities ($2,500), special telephone lines ($1,600), a connection with an online brokerage service ($2,600), and the salary of a financial planner ($17,700). Variable costs include payments to the financial planner (88% of revenue), advertising left parenthesis (13% of revenue), supplies and postage (33% of revenue), and usage fees for the telephone lines and computerized brokerage service left parenthesis 6 %(6% of revenue).
1. |
Use
the contribution margin ratio approach to compute
Big Time's breakeven revenue in dollars. If the average trade
leads to $1,000 |
2. |
Use the equation approach to compute the dollar revenues needed to earn a monthly target profit of $12,600. |
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 trade. Compute the new breakeven point in trades. How does this affect the breakeven point? |
(Round your answers to the nearest whole number.)
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 - 8% - 13% - 3% - 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 = 8,900 + 1,700 + 2,500 + 1,600 + 2,600 + 17,700 = $ 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
Big TimeBig Time Investor Group is opening an office in Portland, Oregon. Fixed monthly costs are...
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)....
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I have added the pictures for decision case 21-1 as per
requested in the instructions from the textbook....if solved in
detail and calculations shown would be really helpful
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I have posted the decision case 21-1 as instructed in the
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Please show the calculations for my better understanding and
the second part of the question also requires a CVP graph I also
need help of how it is suppose to be drawn
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