National Investor Group is opening an office in Portland. Fixed monthly costs are office rent ($8,500), depreciation

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National Investor Group is opening an office in Portland. Fixed monthly costs are office rent ($8,500), depreciation on office furniture ($2,000), utilities ($2,100), special telephone lines ($1,100), a connection with an online brokerage service ($2,800), and the salary of a financial planner ($4,500). Variable costs include payments to the financial planner (8% of revenue), advertising (13% of revenue), supplies and postage (3% of revenue), and usage fees for the telephone lines and computerized brokerage service (6% of revenue).

Requirements

1. Use the contribution margin ratio CVP formula to compute National’s breakeven revenue in dollars. If the average trade leads to $1,000 in revenue for National, how many trades must be made to break even?

2. Use the income statement equation approach to compute the dollar revenues needed to earn a target monthly operating income of $12,600.

3. Graph National’s CVP relationships. Assume that an average trade leads to $1,000 in revenue for National. 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 $12,600 is earned.

4. Suppose that the average revenue National earns increases to $1,200 per trade. Compute the new breakeven point in trades. How does this affect the breakeven point?


Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
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Financial and Managerial Accounting

ISBN: 978-0132497978

3rd Edition

Authors: Horngren, Harrison, Oliver

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