Risky Investor Group is opening an office in Portland, Oregon. Fixed monthly costs are office rent ($8,300), depreciation on office furniture ($2,000), utilities ($2,200), special telephone lines ($1,100), a connection with an online brokerage service ($2,600), and the salary of a financial planner ($4,800). 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 Risky's breakeven revenue in dollars. If the average trade leads to $750 in revenue for Risky, 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 Risky to break even. (Abbreviation used: CM = contribution margin.) + + = Required sales in dollars Requirements + % = Risky must make trades break even. Requirement 2. Use the equation approach to compute the dollar revenues needed to earn a monthly target profit of $10,500. Begin by selecting the formula to compute the required sales in units to earn a target profit. Target profit 1. Use the contribution margin ratio approach to compute Risky's breakeven revenue in dollars. If the average trade leads to $750 in revenue for Risky, 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 $10,500. 3. Graph Risky's CVP relationships. Assume that an average trade leads to $750 in revenue for Risky. 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 $10,500 is earned. 4. Suppose that the average revenue Risky earns increases to $1,250 per trade. Compute the new breakeven point in trades. How does this affect the breakeven point? (Round vour answers to the nearest whole number.) Rearrange the formula you determined above and compute the required number of trades to earn a monthly target profit of $10,500. Risky must make trades to earn a monthly operating income of $10,500. Now compute the dollar revenues needed to earn a monthly target profit of $10,500. Risky needs in revenues to earn a monthly operating income of $10,500. Print Done (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 Risky's CVP relationships. Assume that an average trade leads to $750 in revenue for Risky. 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 $10,500 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 $10,500 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.) 80 702 60 50 Dollars (Thousands) 40 30 20 10 07 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 70 601 50 Dollars (Thousands) 401 30 o 20 10 0 0 10 20 30 40 50 60 70 80 Units (Trades) Click to enlarge graph 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.) A. B. C. D. 80 80+ 80- 80+ Dollars (Thousands) Dollars (Thousands) Income Dollars (Thousands) Dollars (Thousands) Income income Income Loss Loss 0 0 10 20 30 4050607080 Units (Trades) 0 10 20 30 4050607080 Units (Trades) O- RITTIIN 0 10 20 30 4050607080 Units (Trades) 0 10 20 30 4050607080 Units (Trades) Requirement 4. Suppose that the average revenue Risky earns increases to $1,250 per trade. Compute the new breakeven point in trades. How does this affect the breakeven point? Under new assumptions, Risky must make trades to break even. With the increase in the average revenue per trade, the breakeven point in number of trades