Response to the following problem:
Money Maker Investment Group is opening an office in Atlanta. Fixed monthly expenses are office rent ($9,100), depreciation on office furniture ($700), utilities ($1,400), special telephone lines ($1,600), a connection with an online brokerage service ($2,000), and the salary of a financial planner ($4,800). Variable expenses include commissions for the financial planner (8% of sales), advertising (12% of sales), supplies and postage (4% of sales), and usage fees for the telephone lines and computerized brokerage service (6% of sales).
Required
1. Use the contribution margin ratio CVP formula to compute Money Maker's breakeven sales in dollars. If the average sale is a $700 trade commission, how many sales must be made to break even?
2. Use the income statement equation approach to compute the dollar sales needed to earn a target monthly operating income of $9,800.
3. Graph Money Maker's CVP relationships. Assume that an average sale is a $700 trade commission. Show the breakeven point, sales revenue line, fixed expense line, total expense line, operating loss area, operating income area, and the sales in units (trades) and dollars when monthly operating income of $9,800 is earned. The graph should range from 0 to 80 units (trades).
4. Assume that the average trade commission decreases to $560 per trade. Use the contribution margin approach to compute the new breakeven point in trades. How does the lower trade commission affect the breakeven point?