Your Answer: Infinity Designs, an interior design company, has experienced a dro

Question

Your Answer:

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:

Explanation / Answer

It is being assumed that the company will incur the cost of exhibition in next year.

And the estimated incremental revenue is considered for the next year.

On the basis of other actuals, the net impact on the profit of the books of the company shall be :

Next Year

Estimated Increase in revenue : $36000

Cost of space for holding exhibit : $12000

Cost of presentation : $0

Cost of pamphlets : $0 ( already incurred cost ie sunk cost )

Total Incremental cost = $12000

Net incremental profit : Incemental revenue - incremental cost

ie $36000 - $12000 = -$24000 ( Positive impact in current year )

Hence in the next year, there will be incremental effect of $24000 in profits of the company.

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