American Investor Group is opening an office in Portland, Oregon. Fixed monthly costs are office rent ($8,100), depreciation on office furniture ($1,800), utilities ($2,500), special telephone lines ($1,400), a connection with an online brokerage service ($2,700), and the salary of a financial planner ($4,500). 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. Requirement 1. Use the contribution margin ratio approach to compute American's breakeven revenue in dollars. If the average trade leads to $1,000 in revenue for American, how many trades must be made to break even? Begin by showing the formula and then entering the amounts to calculate the required sales dollars for American to break even. (Abbreviation used: CM = contribution margin.) ( Fixed costs + Target profit - CM ratio = Required sales in dollars + % American must make trades to break even. Requirement 2. Use the equation approach to compute the dollar revenues needed to earn a monthly target profit of $12,600. Begin by selecting the formula to compute the required sales in units to earn a target profit. = Target profit Rearrange the formula you determined above and compute the required number of trades to earn a monthly target profit of $12,600. American must make trades to earn a monthly operating income of $12,600. Now compute the dollar revenues needed to earn a monthly target profit of $12,600. American needs in revenues to earn a monthly operating income of $12,600. (After you hit continue the screen may take you below the beginning of the next step. If so, scroll back up to the top of the step.) Requirement 3. Graph American's CVP relationships. Assume that an average trade leads to $1,000 in revenue for American. 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. We will begin graphing the CVP relationships by first plotting the two points: breakeven point and the point where monthly operating income of $12,600 is earned. (Enlarge the graph to medium size and use the point tool button displayed below to draw the graph. Be sure to select a label for each point plotted.) 80= 70- 60 50 Dollars (Thousands) 40 30 20 10- 0- 0 10 20 30 40 50 60 70 80 Units (Trades) Click to enlarge graph Next plot the following lines: the sales revenue line, fixed cost line, and the total cost line. (Enlarge the graph to medium size and use the line tool button displayed below to draw the graph. Do NOT use plot points that require rounding. [Hint: refer to your computations from Requirements 1 and/or 2, as appropriate, to assist in identifying plot points.] Be sure to select a label for each line drawn.) 80= 70 605 50 Dollars (Thousands) 40% 30 O 20 10 0 0 60 70 80 10 20 30 40 50 Units (Trades) H Click to enlarge graph (After you hit continue the screen may take you below the beginning of the next step. If so, scroll back up to the top of the step.) The final step in our graph is to determine where the operating income and the operating loss areas are on the graph that you previously prepared. Review the graphs and determine which has the correct shaded areas labeled for income and loss. (Enlarge each graph before selecting your answer.) O A. B. C. D. 80- 80- 80- 80- a Dollars (Thousands) Dollars (Thousands) Dollars (Thousands) Dollars (Thousands) Income ilincome Loss Loss Loss Income OMITI 0 1020304050607080 Units (Trades) 0 mm OVH 0 1020304050607080 Units (Trades) 0 1020304050607080 Units (Trades) 0-1 0 1020304050607080 Units (Trades) Requirement 4. Suppose that the average revenue American earns increases to $1,500 per trade. Compute the new breakeven point in trades. How does this affect the breakeven point? Under new assumptions, American must make trades to break even. With the increase in the average revenue per trade, the breakeven point in number of trades le Requirements 1. Use the contribution margin ratio approach to compute American's breakeven revenue in dollars. If the average trade leads to $1,000 in revenue for American, how many trades must be made to break even? 2. Use the equation approach to compute the dollar revenues needed to earn a monthly target profit of $12,600. 3. Graph American's CVP relationships. Assume that an average trade leads to $1,000 in revenue for American. 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 American earns increases to $1,500 per trade. Compute the new breakeven point in trades. How does this affect the breakeven point? (Round your answers to the nearest whole number.) 0 Print Done