Infinity Designs, an interior design company, has experienced a drop in business
ID: 2742739 • 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
As a result of exhibit the revenue of the company will increase by $ 36,000 and the additional cost to be incurred is $ 12,000. Thus impact on company profit is
Increase in Revenue = $ 36,000
Increase in cost = $ 12,000
Net Increase in profit = $ 36,000 - $ 12,000 = $ 24,000
In the problem it is not mentioned that the company will be incurring cost on advertising in middleton journal of $ 2500. If it is not incurred than the profit will further increase by $ 2,500 thus increasing profit to $ 26,500