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)				$2,000
		Depreciation of company cars				9,000
Required:
Calculate the impact of the exhibit on company profit.

Round to two decimal places.

Answer 1

	Calculation the impact of exhibit on Company Profit.
	Particulars	Amount
	Increase in Revenue due to exhibit	$36,000.00
	Less: Design Supplies as it is a Variable Cost (Refer Working Note 2)	$2,686.57
	Less: Travel Expenses as it is a Variable Cost (Refer Working Note 3)	$358.20
	Less: Cost of Space due to exhibit	$12,000.00
	Profit to the Company due to Exhibit [36000-2686.57-358.21-12000]	$20,955.23
	Working Notes:
1	Please note that only variable costs should be deducted from additional revenue
	generated due to exhibit as variable costs are changed as change in an activity.
	In the given problem, costs other than mentioned above are Fixed Costs and should
	not be deducted from the revenue as these costs will be incurred though there will be
	no revenue from exhibit.
2	Cost of Design Supplies allocated to Additional Revenue
	=[(Design Supplies of Previous Year/Revenue of Previous Year)*Increase in Revenue]
	= [(15000/201000)*36000]
	=0.074627*36000
	= $2686.57
3	Cost of Travel Expenses allocated to Additional Revenue
	=[(Travel Expenses of Previous Year/Revenue of Previous Year)*Increase in Revenue]
	=[(2000/201000)*36000]
	=[0.00995*36000]
	=$358.20