Incremental Analysis [LO 1] Rustic Interiors, an interior design company, has ex
ID: 2356883 • Letter: I
Question
Incremental Analysis [LO 1] Rustic Interiors, an interior design company, has experienced a drop in business due to an increase in interest rates and a corresponding slowdown in remodeling projects. To stimulate business, the company is considering exhibiting at the Middleton Home and Garden Expo. The exhibit will cost the company $13,000 for space. At the show, Rustic Interiors will present a slide show on a PC, pass out brochures that were printed previously (the company printed more than needed), and show its portfolio of previous jobs. The company estimates that revenue will increase by $40,000 over the next year as a result of the exhibit. For the previous year, profit was as follows: Revenue $210,000 Less: Design supplies $16,000 Salary of Samantha Spade (owner) 82,000 Salary of Kim Bridesdale (full time employee) 56,000 Rent 19,000 Utilities 7,000 Depreciation of office equipment 4,000 Printing of advertising materials 800 Advertising in Middleton Journal 3,000 Travel expenses other than depreciation of autos 2,500 Depreciation of company cars 10,000 200,300 Net income $9,700 Calculate the impact of the exhibit on company profit. Assume supplies and travel vary with revenue. (Round calculations for percentage of revenue to 4 decimal places, e.g. 0.0124. Round final answer to 0 decimal places, e.g. 5,256.) $ Should the company exhibit at the home show?Explanation / Answer
Incremental Revenue 40000 Incremental Costs: Space rental 13000 Supplies 3048 (16000/210000 = .0762 * 40000) Travel 476 (2500/210000 = .0119 * 40000) (perhaps you must also include auto depreciation in this calculation--I was not positive, so I only included travel expense) Incremental profit 23,476 Yes, the show results in additional profit.