Infinity Designs, an interior design company, has experienced a drop in business
ID: 2656846 • Letter: I
Question
Infinity Designs, 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 Home and Garden Expo. The exhibit will cost the company $12,000 for space. At the show, Infinity Designs will present a slide show on a PC, pass out brochures that are printed previously, (the company printed more than needed), and show its portfolio of previous jobs. The company estimates that revenue will increase by $36,000 over the next year as a result of the exhibit. For the previous year, profit was as follows: Revenue $201,000 Less: Design supplies (variable cost) $17,000 Salary of Samantha Spade (owner) 80,000 Salary of Kim Bridesdale (full time employee) 55,000 Rent 18,000 Utilities 6,000 Depreciation of office equipment 3,600 Printing of advertising materials 700 Advertising in Middleton Journal 2,500 Travel expenses other than depreciation of autos (variable cost) $2,400 Depreciation of company cars 9,000 Required: Calculate the impact of the exhibit on company profit.
Explanation / Answer
For computing the impact on profits, we consider incremental revenues and costs. Hence variable costs such as design and travel expenses are only considered. Fixed costs will remain the same and will have no impact on the profits due to the exhibit. Space cost os considered as it is additional cost due to exhibit.
Increase in revenue 36000 Less: Cost of space 12000 Design supplies (17000*36000/201000) 3044.776 Travel expenses (2400*36000/201000) 429.8507 Net Increase in profits 20525.37