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) | $2,200 | ||||||
Depreciation of company cars | 9,000 | ||||||
Required: | |||||||
Calculate the impact of the exhibit on company profit. |
Round to two decimal places.
Design Supplies % = Design Supplies / Revenue = 17000 / 201000 = 0.084577
Travel Expenses % = Travel Expense / Revenue = $2200 / 201000 = 0.010945
Utilities % = Utilities / Revenue = $6000 / 201000 = 0.029851
Impact on Profit = Revenue * (1 - Design - Travel - Utilities) - Space Rent
Impact on Profit = 36000 * (1 - 0.084577 - 0.010945 - 0.029851) - 12000
Impact on Profit = 36000 * 0.874627 - 12000
Impact on Profit = $19486.57
Profit increases by $19486.57
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