Infinity Designs, an interior design company, has experienced a drop in business
ID: 2758444 • 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) $16,500
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) $2,200
Depreciation of company cars 9,000
Required: Calculate the impact of the exhibit on company profit.
Explanation / Answer
Infinity Designs income Statement Variable costing Format Last Year After Exhibit Next Year Details Amt $ % Of revenue Amt $ % Of revenue Revenue 201,000 237,000 Less Variable costs Design Supplies 16,500 8.21% 19,455 8.21% Travel Expense 2,200 1.09% 2,594 1.09% Total Variable cost 18,700 22,049 Contribution Margin 182,300 214,951 Fixed costs Salary-Samantha Spade 80,000 80,000 Salary -Kim Bridesdale 55,000 55,000 Rent 18,000 18,000 Utilities 6,000 6,000 Depreciation Office Equipments 3,600 3,600 Printing Advertisemnt Materials 700 700 Advertisisng in Journal 2,500 2,500 Depreciation company cars 9,000 9,000 Exhibit Cost 12,000 Total Fixed cists 174,800 186,800 Net Operating income 7,500 28,151 So the company profit increases by $20651 after the exhibit