Market Time Investors is opening an office in Orlando, Florida. Fixed monthly expenses are office rent ($2,100), depreciation on office furniture ($260), utilities ($280), special telephone lines ($600), a connection with an online brokerage service ($640), and the salary of a financial planner ($5,220). Variable expenses include payments to the financial planner (14% of revenue), advertising (7% of revenue), supplies and postage (3% of revenue), and usage fees for the telephone lines and computerized brokerage service (6% of revenue).
Requirements
1. Compute the investment firm's breakeven revenue in dollars. If the average trade leads to $520 in revenue for Market Time, how many trades must it make to break even?
2. Compute dollar revenues needed to earn monthly operating income of $3,640.
3. Graph Market Time's CVP relationships. Assume that an average trade leads to $520 in revenue for the firm. Show the breakeven point, sales revenue line, fixed expense line, total expense line, operating loss area, operating income area, and sales in units (trades) and dollars when monthly operating income of $3,640 is earned. The graph should range from 0 to 40 units (trades).
4. Assume that the average revenue that Market Time Investors earns decreases to $420 per trade. How does this affect the breakeven point in number of trades?