Question - Big Time Investor Group is opening an office in Dallas, Fixed monthly cost is office rent $8,200, depreciation on office furniture $1,500, utilities $2,300 special telephone lines $1300, a connection with an online brokerage service $2,900 and the salary of the financial planner $11,800. Variable cost includes payments to the financial planner 9% of revenue, advertising 12% of revenue, supplies and postage 4% of revenue, and usage fees for the telephone lines and computerized brokerage service 5% of revenue
1. Use the contribution margin ratio CVP formula to compute Big Times breakeven revenue in dollars. If the average trade leads to $800 in revenue for Big Time, how many trades must be made to break even?
2. Use the income statement equation approach to compute the dollar revenues needed to earn a target monthly operating income of $11,200.
3. Graph Big Time's CVP relationships. Assume that an average trade leads to $800 In revenue for Big Time, Show the Break Even point, the sales revenue line, the fixed costs line, the total cost line, the operating income area, and the sales in units(trades) and dollars when monthly operating income of $11,200 is earned. The graph should range from 0 to 80 units.
4. Suppose that the average revenue Big Time earns increases to $900 per trade. Compute the new breakeven point in trades. How does this effect the breakeven point?