Brenda Wong is a licensed real estate broker specializing in vacation homes and investment properties in the Sedona, Arizona area. Because of her affiliation with a large national real estate agency and her attention to detail, Brenda has been able to build a very successful business. Brenda receives a 3% commission, based on the property’s selling price, for every successful transaction. (The realtor representing the other party also receives a 3% commission. Typically, the owner of the property being sold pays both commissions.) Brenda has a nice office and support staff to assist her in operating her business. Brenda’s fixed costs equal $18,000 per month; her variable costs are negligible and, thus, can be ignored.

Required:

a. What is the volume of transactions (in dollars) that Brenda must successfully complete in a month to break even?

b. Assume Brenda currently averages a transaction volume of $1,000,000 per month. What is her margin of safety?

c. What is Brenda’s margin of safety if she averages a transaction volume of $1,200,000 per month. What is Brenda’s margin of safety if she averages a transaction volume of $1,600,000 per month?

d. What do you notice about the relation between Brenda’s margin of safety and her monthly transaction volume?