William Investors is opening an office in Boise, Idaho. Fixed monthly costs are office rent ($2,100), depreciation on office furniture ($260), utilities ($280), special telephone lines ($600), a subscription to an online brokerage service ($640), and the salary of a financial planner ($3,120). Variable expenses include payments to the financial planner (16% 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 $500 in revenue for William Investors, how many trades must be made to break even?
2. Compute dollar revenues needed to earn monthly operating income of $3,500.
3. Graph William's CVP relationships. Assume that an average trade leads to $500 in revenue for William Investors. 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 $3,500 is earned. The graph should range from 0 to 40 units (trades).
4. Assume that the average revenue William Investors earns decreases to $400 per trade. How does this affect the breakeven point in number of trades?