Mini Case 2 - Chapter 3_1358 Edward Smith has wys independently managed his personal investment portfolio After 25 your career w finance manager with a large consulting company, Edward retired and on January 1, 2020, opened an investment advisory business incorporis AS a Service Company, iwan warger to where his knowledge and investing experience with people is wmilar positions to me that is, those who have recently retired. Also, Fidward has discovered there is an unmet need for final planning advice for people living in rural Through his pare, Edward has learned that there are many who canet, or prefer not to drive to larger cities for financial planning help. Therefore, unlike other financial planning firms, Edward drives to his sometime remote rural clients who can be many kilometres from home. The first year of operations of way the wervice was well liked by clients, and he quickly built his client list to 15 (which is the maximum beplans to serve). However, die cc in clients, bis tim. is losing several honde of dollars each month. Prior to offering his Edward had investigated client fee structures of several other fim. He eservered that some firschurge clients sportage of the dollar invested by the cliente combine a final fee with smaller percent of client investment amounts and other charge an hourly fee only. Tidwand wanted to keep it simple for his clients and decided to charge only a fine monthly fee for each distin the first two years. However, because of penting in 2000, Edward is looking for help you to analye his first and is ng advice on how the final versible client fous in 2022 Over the past few years of operation, he has found that every little time, while then call frequently and demand regular visited monthly hard copies of ments Many older ces do not have It or email and prefer face-to-face meetings Therefore, Edward is considering af et currently being in the industry, specifically, he would like to charge fixed fue combined with a variable portion based enten by his machine information he has been carefully tracking Hebdeves this would be the scient lecsemester, we than of Edward's time driving to and from the listThe imply top with repe, this person works 20 hep work out of wasteward hected the local peremees me with the winding of a my sed pipe. The wing is the per EAS Financial Service pull year 2000 G . 2.000 ST. 51.00 . 93 & 83 33 8 M BB #1 19 EU 118 28125 XE : 200 2 m 3 38 BE 22 10 3 M 10 IM STATES Men 24 142 156 122 14 24 57 127 190 10 Required: Determine the independent variable and use the 2020 data above to determine which costs e variable V), mixed (M), ered 2. Use the high-low method to separate fred costs per month and the variable costs 1. Recommend toward a fee structure for next year (2022, suming is goal is to cover his total cost (including Edward's analy) The fee should include a fixed cost per client bured on the state maximum of 35 cient and variable portion 4. Edward were trecordedometer readings when it clients, could this data he wed to imprive the variable change? Would this change the classification of any of the cou Title) Cost categories: Jon Feb Mor Apr Moy jul Aug Sep Oct Nov Des $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 57.000 $7,000 $7,000 $7,000 $7,000 $7,000 Financial planner salary Edward) Assistant salary fextro quarter-end help) 1,800 1,800 1.800 1.800 1.800 1.800 1.800 1,800 1,800 1.800 1,800 1.800 250 250 250 250 250 250 250 250 250 250 250 250 Internet subscription 150 150 150 150 150 150 150 150 150 150 150 150 150 190 150 150 150 150 150 150 150 150 150 150 550 550 550 550 550 550 550 550 550 550 550 550 200 200 200 200 200 200 200 200 200 200 200 200 Bloomberg monthly dato feed Depreciation office equipment) Depreciation (car) Carroad side assist. Mtce and Gas Supplies Insurance Portfolio information and mailing Utilities Total 276 267 225 230 120 225 120 279 120 2:40 120 120 222 120 239 120 225 120 326 120 120 120 204 120 28 23 30 26 18 38 30 172 142 $10,706 $10,622 146 149 19 18 14 23 18 158 uz 149 242 135 $10.637 $10.577 $10.622 $10,615 $10,699 148 131 172 $10,619 $10,671 $10,665 $10,602 $10,614 256 162 Hours with clients fincludes driving time) 156 172 142 66 34 57 127 170 167 182 Required: 1. Determine the independent variable and use the 2020 data above to determine which costs are variable (V), mixed (M), or fixed (F). 2. Use the high-low method to separate fixed costs per month and the variable costs. 3. Recommend to Edward a fee structure for next year (2022), assuming his goal is to cover his total costs (including Edward's annual salary). The fee should include a fixed cost per client based on the stated maximum of 35 clients and a variable portion. 4. If Edward were to record odometer readings when visiting clients, could this data be used to improve the variable charge rate? Would this change the classification of any of the cost categories? Mini Case 2 - Chapter 3_1358 Edward Smith has always independently managed his personal investment portfolio. After a 25- year career as a finance manager with a large consulting company, Edward retired and on January 1, 2020, opened an investment advisory business incorporated as E&S Financial Services Company. Edward was eager to share his knowledge and investing experience with people in similar positions to himself; that is, those who have recently retired. Also, Edward has discovered there is an unmet need for financial-planning advice for people living in rural areas. Through his parents, Edward has learned that there are many seniors who cannot, or prefer not to drive to larger cities for financial-planning help. Therefore, unlike other financial-planning firms, Edward drives to his sometimes-remote rural clients who can be many kilometres from his home. The first year of operations of Edward's company the service was well liked by clients, and he quickly built his client list to 35 (which is the maximum he plans to serve). However, despite success in attracting clients, his firm is losing several thousands of dollars each month. Prior to offering his services, Edward had investigated client fee structures of several other firms. He discovered that some firms charge clients based on a percentage of the dollar amount invested by the client, some combine a fixed annual fee with a smaller percent of client investment amounts, and others charge an hourly fee only. Edward wanted to keep it simple for his clients and decided to charge only a fixed monthly fee for each client in the first two years. However, because of an operating loss in 2020, Edward is looking for help from you to analyze his financial results and is seeking advice on how structure (i.c., fixed versus variable) client fees in 2022. Over the past few years of operations, he has found that some clients require very little time, while others call frequently and demand regular visits and monthly hard copies of statements. (Many older clients do not have Internet or email access and prefer face-to-face meetings.) Therefore, Edward is considering a fee structure not currently being used in the industry, specifically, he would like to charge an annual fixed fee combined with a variable portion based on time spent by him and his assistant on each client account (information he has been carefully tracking). He believes this would better reflect the costs incurred to service his 35 clients. Because most clients are in rural areas, on average, more than 80% of Edward's time is spent driving to and from the client. The firm employs an assistant to help with administrative responsibilities, and this person works 20 hours per week out of Edward's home office. Edward also contracted with another local person to help once a month with the preparation and mailing of a monthly investment news and portfolio update. The following is the operating results of E&S Financial Services for the past full year of 2020. Mini Case 2 - Chapter 3_1358 Edward Smith has wys independently managed his personal investment portfolio After 25 your career w finance manager with a large consulting company, Edward retired and on January 1, 2020, opened an investment advisory business incorporis AS a Service Company, iwan warger to where his knowledge and investing experience with people is wmilar positions to me that is, those who have recently retired. Also, Fidward has discovered there is an unmet need for final planning advice for people living in rural Through his pare, Edward has learned that there are many who canet, or prefer not to drive to larger cities for financial planning help. Therefore, unlike other financial planning firms, Edward drives to his sometime remote rural clients who can be many kilometres from home. The first year of operations of way the wervice was well liked by clients, and he quickly built his client list to 15 (which is the maximum beplans to serve). However, die cc in clients, bis tim. is losing several honde of dollars each month. Prior to offering his Edward had investigated client fee structures of several other fim. He eservered that some firschurge clients sportage of the dollar invested by the cliente combine a final fee with smaller percent of client investment amounts and other charge an hourly fee only. Tidwand wanted to keep it simple for his clients and decided to charge only a fine monthly fee for each distin the first two years. However, because of penting in 2000, Edward is looking for help you to analye his first and is ng advice on how the final versible client fous in 2022 Over the past few years of operation, he has found that every little time, while then call frequently and demand regular visited monthly hard copies of ments Many older ces do not have It or email and prefer face-to-face meetings Therefore, Edward is considering af et currently being in the industry, specifically, he would like to charge fixed fue combined with a variable portion based enten by his machine information he has been carefully tracking Hebdeves this would be the scient lecsemester, we than of Edward's time driving to and from the listThe imply top with repe, this person works 20 hep work out of wasteward hected the local peremees me with the winding of a my sed pipe. The wing is the per EAS Financial Service pull year 2000 G . 2.000 ST. 51.00 . 93 & 83 33 8 M BB #1 19 EU 118 28125 XE : 200 2 m 3 38 BE 22 10 3 M 10 IM STATES Men 24 142 156 122 14 24 57 127 190 10 Required: Determine the independent variable and use the 2020 data above to determine which costs e variable V), mixed (M), ered 2. Use the high-low method to separate fred costs per month and the variable costs 1. Recommend toward a fee structure for next year (2022, suming is goal is to cover his total cost (including Edward's analy) The fee should include a fixed cost per client bured on the state maximum of 35 cient and variable portion 4. Edward were trecordedometer readings when it clients, could this data he wed to imprive the variable change? Would this change the classification of any of the cou Title) Cost categories: Jon Feb Mor Apr Moy jul Aug Sep Oct Nov Des $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 57.000 $7,000 $7,000 $7,000 $7,000 $7,000 Financial planner salary Edward) Assistant salary fextro quarter-end help) 1,800 1,800 1.800 1.800 1.800 1.800 1.800 1,800 1,800 1.800 1,800 1.800 250 250 250 250 250 250 250 250 250 250 250 250 Internet subscription 150 150 150 150 150 150 150 150 150 150 150 150 150 190 150 150 150 150 150 150 150 150 150 150 550 550 550 550 550 550 550 550 550 550 550 550 200 200 200 200 200 200 200 200 200 200 200 200 Bloomberg monthly dato feed Depreciation office equipment) Depreciation (car) Carroad side assist. Mtce and Gas Supplies Insurance Portfolio information and mailing Utilities Total 276 267 225 230 120 225 120 279 120 2:40 120 120 222 120 239 120 225 120 326 120 120 120 204 120 28 23 30 26 18 38 30 172 142 $10,706 $10,622 146 149 19 18 14 23 18 158 uz 149 242 135 $10.637 $10.577 $10.622 $10,615 $10,699 148 131 172 $10,619 $10,671 $10,665 $10,602 $10,614 256 162 Hours with clients fincludes driving time) 156 172 142 66 34 57 127 170 167 182 Required: 1. Determine the independent variable and use the 2020 data above to determine which costs are variable (V), mixed (M), or fixed (F). 2. Use the high-low method to separate fixed costs per month and the variable costs. 3. Recommend to Edward a fee structure for next year (2022), assuming his goal is to cover his total costs (including Edward's annual salary). The fee should include a fixed cost per client based on the stated maximum of 35 clients and a variable portion. 4. If Edward were to record odometer readings when visiting clients, could this data be used to improve the variable charge rate? Would this change the classification of any of the cost categories? Mini Case 2 - Chapter 3_1358 Edward Smith has always independently managed his personal investment portfolio. After a 25- year career as a finance manager with a large consulting company, Edward retired and on January 1, 2020, opened an investment advisory business incorporated as E&S Financial Services Company. Edward was eager to share his knowledge and investing experience with people in similar positions to himself; that is, those who have recently retired. Also, Edward has discovered there is an unmet need for financial-planning advice for people living in rural areas. Through his parents, Edward has learned that there are many seniors who cannot, or prefer not to drive to larger cities for financial-planning help. Therefore, unlike other financial-planning firms, Edward drives to his sometimes-remote rural clients who can be many kilometres from his home. The first year of operations of Edward's company the service was well liked by clients, and he quickly built his client list to 35 (which is the maximum he plans to serve). However, despite success in attracting clients, his firm is losing several thousands of dollars each month. Prior to offering his services, Edward had investigated client fee structures of several other firms. He discovered that some firms charge clients based on a percentage of the dollar amount invested by the client, some combine a fixed annual fee with a smaller percent of client investment amounts, and others charge an hourly fee only. Edward wanted to keep it simple for his clients and decided to charge only a fixed monthly fee for each client in the first two years. However, because of an operating loss in 2020, Edward is looking for help from you to analyze his financial results and is seeking advice on how structure (i.c., fixed versus variable) client fees in 2022. Over the past few years of operations, he has found that some clients require very little time, while others call frequently and demand regular visits and monthly hard copies of statements. (Many older clients do not have Internet or email access and prefer face-to-face meetings.) Therefore, Edward is considering a fee structure not currently being used in the industry, specifically, he would like to charge an annual fixed fee combined with a variable portion based on time spent by him and his assistant on each client account (information he has been carefully tracking). He believes this would better reflect the costs incurred to service his 35 clients. Because most clients are in rural areas, on average, more than 80% of Edward's time is spent driving to and from the client. The firm employs an assistant to help with administrative responsibilities, and this person works 20 hours per week out of Edward's home office. Edward also contracted with another local person to help once a month with the preparation and mailing of a monthly investment news and portfolio update. The following is the operating results of E&S Financial Services for the past full year of 2020