Question 2 Rusty Redlow has always independently managed his personal investment portfolio. After a 25- year career as a chemical engineer with a large chemical company, Rusty retired and on January 1, 2014, opened an investment advisory business incorporated as R&R Financial Planning LLC. Rusty was cager to share his knowledge and investing experience with people in similar positions to himself; that is, those who have recently retired. Also, Rusty has discovered there is an unmet need for financial-planning advice for people living in rural areas. Through his parents, Rusty has leamed 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, Rusty drives to his sometimes-remote rural clients who can be many kilometres from his home. The first year of operations of Rusty's company was very successful, and he quickly built his client list to 35 (which is the maximum he plans to serve). However, despite this success, his firm lost several thousand dollars last year. Prior to offering his services, Rusty had investigated client fee structures of several other finns. He discovered that some firms charge clients based on a percent of the amount of client investment dollars under management, some combine a fixed annual fee with a smaller percent of client investment amounts, and others charge an hourly fee. Rusty decided to charge clients a fixed fee for the first year. Because of an operating loss in 2014, however, Rusty is looking for help to analyze his financial results and is seeking advice on how much to charge clients in 2015 In his first year of operations, he found some clients require very little time while others call frequently and demand visits and monthly hard copies of statements. (Many older clients do not have Internet or email access and prefer face-to-face meetings.) Therefore, Rusty is considering a fee structure not currently being used in the industry; specifically, he would like to charge annual fixed fee combined with a variable portion based on time spent on each client account (information he has carefully tracked during the first year). He believes this would better reflect the cost to service the various clients. Because most clients are in rural areas, on average, more than 90% of Randy'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 Rusty's home office. Rusty 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 sets out the operating results of R&R Financial Planning for 2014. May Mar Sun Aue Oct Des SER Now $4,500 $4,500 $4,500 $4,500 S4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 Cost categories lan Financial planner salary Rusty Redlow) $4,500 Assistant salary(extra quarter- end help) 950 Internet subscription 135 Bloomberg monthly data feed 220 Depreciation (office equipment) 80 Depreciation (car) 380 Car-road side assist., Mtce and Gas 305 Supplies 644 Insurance 102 Portfolio Information and mailing 36 Utilities 950 950 135 135 220 220 180 80 AD 3D 950 135 220 BD 380 950 950 135 235 220 230 80 BD 380 380 950 950 135 135 220 220 800 20 380 960 135 220 BO 380 950 135 220 80 380 950 135 220 30 380 950 135 220 80 380 190 505 102 29 120 185 500 102 14 210 551 102 22 125 55 440 102 8 02 170 514 102 18 112 59 475 102 13 214 540 102 120 500 102 12 155 500 102 14 16 168 500 102 12 110 153 490 102 15 116 131 145 $7,155 $6,962 $7,201 $7.157 $2,500 $7,181 $7,146 S701R $7,110 $7,211 $7.176 $7.275 Total Hours with clients (includes driving time) 85 151 55 110 105 21 754 19 148 142 149 100 Required: 1. Determine the independent variable and use the 2014 data above to determine which costs are variable (V), mixed (M), or fixed (F). (3 marks) 2. Use the high-low method to separate fixed costs per month and the variable costs. (6 marks) 3. Recommend a fee structure for Rusty, assuming his goal is to break even (including Rusty's annual salary). The fee should include a fixed cost per client based on the stated maximum of 35 clients and a variable portion. (3 marks) 4. If Rusty 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? (3 marks) Question 2 ER SAL M I! SNO Ou $4,500 54503 $4,500 $1,500 1450 $1,500 54,500 $40 54500 $4,103 $4.500 950 125 950 19 SERIE: Financiare salarissi Peuw A wy train min Ierodacristian Boomberg onth dated Dendation om gerer Depreciation Carde det, Mind Gius Saplus 95 135 270 30 Rusty Redlow has always independently managed his personal investment portfolio. After a 25- year career as a chemical engineer with a large chemical company, Rusty retired and on January 1, 2014, opened an investment advisory business incorporated as R&R Financial Planning LLC. Rusty was eager to share his knowledge and investing experience with people in similar positions to himself; that is, those who have recently retired. Also, Rusty has discovered there is an unmnet need for financial-planning advice for people living in nural areas. Through bis parents, Rusty 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, Rusty drives to his sometimes-remote rural clients who can be many kilometres from his home. 135 220 82 950 13 220 80 11 220 950 135 220 an 101 1 220 960 125 JU BO 183 955 525 220 29 30 99 135 230 an 135 220 30 31 83 35 30 55 100 sus 102 29 12 125 500 102 110 551 102 73 125 14 104 36 45 170 514 102 18 112 102 Pufolla information and wait Lunes 52 SU 155 435 500 102 102 inz 13 13 14 104 111 119 $1,018 219 5:130 57.155 6 AM S12 15 116 214 540 00 12 102 35 12 1 111 14 $1,181 57,157 110 $7,145 $7.500 $7,711 $7,176 53,27% $1,111 $ Tor Fair with direct ding time 143 130 142 149 109 23 55 uns The first year of operations of Rusty's company was very successful, and he quickly built his client list to 35 (which is the maximum he plans to serve). However, despite this success, his firm lost several thousand dollars last year. Prior to offering his services, Rusty had investigated client fee structures of several other firms. He discovered that some firms charge clients based on a percent of the amount of client investment dollars under management, some combine a fixed annual fee with a smaller percent of client investment amounts, and others charge an hourly fee, Rusty decided to charge clients a fixed fee for the first year. Because of an operating loss in 2014, however, Rusty is looking for help to analyze his financial results and is seeking advice on how much to charge clients in 2015. Required: In his first year of operations, he found some clients require very little time while others call frequently and demand visits and monthly hard copies of statements. (Many older clients do not have Internet or email acoss and prefer face-to-face meetings.) Therefore, Rusty 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 on each client account (information he has carefully tracked during the first year), He believes this would better reflect the cost to service the various clients. 1. Determine the independent variable and use the 2014 data above to determine which costs are variable (V), mixed (M), or fixed (F). (3 marks) 2. Use the bigh-low method to separate fixed costs per month and the variable costs. (6 marks) 3. Recommend a fee structure for Rusty, issuring his goal is to break even (including, Rusty's annual salary). The fee shuuld include a fixed cost per client based on the stated maximum of 35 clients and a variable portion (3 marks) 4. [[ Rusty 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 cutegories? (3 marks) Because most clients are in rural arcas, on average, more than 90% of Randy'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 Rusty's home office, Rusty 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 sets out the operating results of R&R Financial Planning for 2014 Question 2 Rusty Redlow has always independently managed his personal investment portfolio. After a 25- year career as a chemical engineer with a large chemical company, Rusty retired and on January 1, 2014, opened an investment advisory business incorporated as R&R Financial Planning LLC. Rusty was cager to share his knowledge and investing experience with people in similar positions to himself; that is, those who have recently retired. Also, Rusty has discovered there is an unmet need for financial-planning advice for people living in rural areas. Through his parents, Rusty has leamed 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, Rusty drives to his sometimes-remote rural clients who can be many kilometres from his home. The first year of operations of Rusty's company was very successful, and he quickly built his client list to 35 (which is the maximum he plans to serve). However, despite this success, his firm lost several thousand dollars last year. Prior to offering his services, Rusty had investigated client fee structures of several other finns. He discovered that some firms charge clients based on a percent of the amount of client investment dollars under management, some combine a fixed annual fee with a smaller percent of client investment amounts, and others charge an hourly fee. Rusty decided to charge clients a fixed fee for the first year. Because of an operating loss in 2014, however, Rusty is looking for help to analyze his financial results and is seeking advice on how much to charge clients in 2015 In his first year of operations, he found some clients require very little time while others call frequently and demand visits and monthly hard copies of statements. (Many older clients do not have Internet or email access and prefer face-to-face meetings.) Therefore, Rusty is considering a fee structure not currently being used in the industry; specifically, he would like to charge annual fixed fee combined with a variable portion based on time spent on each client account (information he has carefully tracked during the first year). He believes this would better reflect the cost to service the various clients. Because most clients are in rural areas, on average, more than 90% of Randy'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 Rusty's home office. Rusty 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 sets out the operating results of R&R Financial Planning for 2014. May Mar Sun Aue Oct Des SER Now $4,500 $4,500 $4,500 $4,500 S4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 Cost categories lan Financial planner salary Rusty Redlow) $4,500 Assistant salary(extra quarter- end help) 950 Internet subscription 135 Bloomberg monthly data feed 220 Depreciation (office equipment) 80 Depreciation (car) 380 Car-road side assist., Mtce and Gas 305 Supplies 644 Insurance 102 Portfolio Information and mailing 36 Utilities 950 950 135 135 220 220 180 80 AD 3D 950 135 220 BD 380 950 950 135 235 220 230 80 BD 380 380 950 950 135 135 220 220 800 20 380 960 135 220 BO 380 950 135 220 80 380 950 135 220 30 380 950 135 220 80 380 190 505 102 29 120 185 500 102 14 210 551 102 22 125 55 440 102 8 02 170 514 102 18 112 59 475 102 13 214 540 102 120 500 102 12 155 500 102 14 16 168 500 102 12 110 153 490 102 15 116 131 145 $7,155 $6,962 $7,201 $7.157 $2,500 $7,181 $7,146 S701R $7,110 $7,211 $7.176 $7.275 Total Hours with clients (includes driving time) 85 151 55 110 105 21 754 19 148 142 149 100 Required: 1. Determine the independent variable and use the 2014 data above to determine which costs are variable (V), mixed (M), or fixed (F). (3 marks) 2. Use the high-low method to separate fixed costs per month and the variable costs. (6 marks) 3. Recommend a fee structure for Rusty, assuming his goal is to break even (including Rusty's annual salary). The fee should include a fixed cost per client based on the stated maximum of 35 clients and a variable portion. (3 marks) 4. If Rusty 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? (3 marks) Question 2 ER SAL M I! SNO Ou $4,500 54503 $4,500 $1,500 1450 $1,500 54,500 $40 54500 $4,103 $4.500 950 125 950 19 SERIE: Financiare salarissi Peuw A wy train min Ierodacristian Boomberg onth dated Dendation om gerer Depreciation Carde det, Mind Gius Saplus 95 135 270 30 Rusty Redlow has always independently managed his personal investment portfolio. After a 25- year career as a chemical engineer with a large chemical company, Rusty retired and on January 1, 2014, opened an investment advisory business incorporated as R&R Financial Planning LLC. Rusty was eager to share his knowledge and investing experience with people in similar positions to himself; that is, those who have recently retired. Also, Rusty has discovered there is an unmnet need for financial-planning advice for people living in nural areas. Through bis parents, Rusty 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, Rusty drives to his sometimes-remote rural clients who can be many kilometres from his home. 135 220 82 950 13 220 80 11 220 950 135 220 an 101 1 220 960 125 JU BO 183 955 525 220 29 30 99 135 230 an 135 220 30 31 83 35 30 55 100 sus 102 29 12 125 500 102 110 551 102 73 125 14 104 36 45 170 514 102 18 112 102 Pufolla information and wait Lunes 52 SU 155 435 500 102 102 inz 13 13 14 104 111 119 $1,018 219 5:130 57.155 6 AM S12 15 116 214 540 00 12 102 35 12 1 111 14 $1,181 57,157 110 $7,145 $7.500 $7,711 $7,176 53,27% $1,111 $ Tor Fair with direct ding time 143 130 142 149 109 23 55 uns The first year of operations of Rusty's company was very successful, and he quickly built his client list to 35 (which is the maximum he plans to serve). However, despite this success, his firm lost several thousand dollars last year. Prior to offering his services, Rusty had investigated client fee structures of several other firms. He discovered that some firms charge clients based on a percent of the amount of client investment dollars under management, some combine a fixed annual fee with a smaller percent of client investment amounts, and others charge an hourly fee, Rusty decided to charge clients a fixed fee for the first year. Because of an operating loss in 2014, however, Rusty is looking for help to analyze his financial results and is seeking advice on how much to charge clients in 2015. Required: In his first year of operations, he found some clients require very little time while others call frequently and demand visits and monthly hard copies of statements. (Many older clients do not have Internet or email acoss and prefer face-to-face meetings.) Therefore, Rusty 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 on each client account (information he has carefully tracked during the first year), He believes this would better reflect the cost to service the various clients. 1. Determine the independent variable and use the 2014 data above to determine which costs are variable (V), mixed (M), or fixed (F). (3 marks) 2. Use the bigh-low method to separate fixed costs per month and the variable costs. (6 marks) 3. Recommend a fee structure for Rusty, issuring his goal is to break even (including, Rusty's annual salary). The fee shuuld include a fixed cost per client based on the stated maximum of 35 clients and a variable portion (3 marks) 4. [[ Rusty 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 cutegories? (3 marks) Because most clients are in rural arcas, on average, more than 90% of Randy'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 Rusty's home office, Rusty 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 sets out the operating results of R&R Financial Planning for 2014