Infinity Designs, an interior design company, has experienced a drop in business
ID: 2717535 • 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) $15,000
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) $3,000
Depreciation of company cars 9,000
Required: Calculate the impact of the exhibit on company profit.
Explanation / Answer
Due to Exhibit impact on profit of the company will be as follows.
All other expenses are of fixed nature so only expenses mentioned above will increase.
Amount Additional Revenue $36,000 Less Additional Variable Cost Design Supplies 2687 Travel expenses 537 Total Variable Cost 3224 Fixed Cost Additional Rent 12,000 Impact On Profit 20,776