Computing breakeven sales and sales needed to earn a target profit graphing CVP relationships, performing sensitivity analysis Diversified Investor Group is opening an office in Boise, Idaho, Fixed monthly costs are office rent ($8,000) depreciation on office furniture ($1,700) utilities ($2,400) special telephone lines ($1,500), a connection with an online brokerage service ($2,500), and the salary of a financial planner ($11,900) 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). Requirements Use the contribution margin ratio approach to compute Diversified’s breakeven revenue in dollars lf the average trade leads to $800 in revenue for Diversified, how many trades must be made to break even? Use the equation approach to compute the dollar revenues needed to earn 2 monthly target profit of $11,200. Graph Diversified s CVP relationships Assume that an average trade leads to $800 in revenue for Diversified 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 $11,200 is earned. Suppose that the average revenue Diversified earns increases to $2,000 per trade. Compute the new breakeven point in trades. How does this affect the breakeven point?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Computing breakeven sales and sales needed to earn a target profit graphing CVP relationships, performing sensitivity analysis

Diversified Investor Group is opening an office in Boise, Idaho, Fixed monthly costs are office rent ($8,000) depreciation on office furniture ($1,700) utilities ($2,400) special telephone lines ($1,500), a connection with an online brokerage service ($2,500), and the salary of a financial planner ($11,900) 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).

Requirements

Use the contribution margin ratio approach to compute Diversified’s breakeven revenue in dollars lf the average trade leads to $800 in revenue for Diversified, how many trades must be made to break even?
Use the equation approach to compute the dollar revenues needed to earn 2 monthly target profit of $11,200.
Graph Diversified s CVP relationships Assume that an average trade leads to $800 in revenue for Diversified 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 $11,200 is earned.
Suppose that the average revenue Diversified earns increases to $2,000 per trade. Compute the new breakeven point in trades. How does this affect the breakeven point?

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