New Investor Group is opening an office inPortland, Oregon. Fixed monthly costs are office rent ($8,700), depreciation on office furniture ($1,700), utilities ($2,000), special telephone lines ($1,400), a connection with an online brokerage service ($2,500), and the salary of a financial planner ($18,700). Variable costs include payments to the financial planner (9% ofrevenue), advertising (11% ofrevenue), supplies and postage (4% ofrevenue), and usage fees for the telephone lines and computerized brokerage service (6% ofrevenue).

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Requirement 1. Use the contribution margin ratio approach to compute New's breakeven revenue in dollars. If the average trade leads to $1,250 in revenue for New, how many trades must be made to breakeven?

Begin by showing the formula and then entering the amounts to calculate the required sales dollars for New to break even.(Abbreviation used: CM= contributionmargin.)

(

Fixed costs

+

Target profit

) /

CM ratio

=

Required sales in dollars

(

$

35,000

+

$

0

) /

70

%

=

$

50,000

New must make

40

trades to break even.

Requirement 2. Use the equation approach to compute the dollar revenues needed to earn a monthly target profit of $14,000.

Begin by selecting the formula to compute the required sales in units to earn a target profit.

Net sales revenue

-

Variable costs

-

Fixed costs

=

Target profit

Rearrange the formula you determined above and compute the required number of trades to earn a monthly target profit of $14,000.

New must make

trades to earn a monthly operating income of $14,000.