9,000 Calculate the impact of the exhibit on company profit. Infinity Designs, a

ID: 2759930 • Letter: 9

Question

9,000

Calculate the impact of the exhibit on company profit.

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) $2,800 Depreciation of company cars

9,000

Explanation / Answer

Answer:

Calculation of Incremental Net Benefit due to Exhibit

% of Revenue

Amount $

Incremental Revenue from Exhibit

$36,000

Less: Cost of Exhibit

($12,000)

Less: Variable Costs

Design Supplies (Varible Cost)

0.085

($3,045)

Travel Expenses other than depreciation of autos

0.014

($501)

Net Incremental Benefit

$20,454

The companies profit will increase by $20,454 if company exhibit at the Home and Garden Expo.

Note---

1) It is assumed that Variable Cost will incur in this case also. % of Revenue is calculated by taking previous year data given in the question = Variable Cost / Revenue.

2) All other expenses are not relevant for decision making since they not relate with the Exhibit. Hence ignored.