Compute breakeven, prepare CVP graph, and respond to change (Learning Objectives 1, 2, 3)

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 ser¬ vice ($2,000), and the salary of a financial planner ($4,800). Variable expenses include payments to the financial planner (8% of revenue), advertising (12% of rev¬ enue), supplies and postage (4% of revenue), and usage fees for the telephone lines and computerized brokerage service (6% of revenue).

Requirements 1. Use the contribution margin ratio CVP formula to compute Money Maker Investment Group’s breakeven revenue in dollars. If the average trade leads to $700 in revenue for Money Maker Investment Group, how many trades must it make to break even?

2. Use the income statement equation approach to compute the dollar revenues needed to earn a target monthly operating income of $9,800.

3. Graph Money Maker Investment Group’s CVP relationships. Assume that an average trade leads to $700 in revenue for Money Maker Investment Group. Show the breakeven point, sales revenue line, fixed expense line, total expense line, operating loss area, operating income area, and 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 revenue that Money Maker Investment Group earns decreases to $560 per trade. Compute the new breakeven point in trades. How does this affect the breakeven point?