Question

Exercise 7-4

Greencastle Interiors, 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 Middleton Home and Garden Expo. The exhibit will cost the company $14,870 for space. At the show, Greencastle Interiors will present a slide show on a laptop, pass out brochures that were printed previously (the company printed more than needed), and show its portfolio of previous jobs.

The company estimates that revenue will increase by $40,270 over the next year as a result of the exhibit. For the previous year, profit was as follows:

Revenue					$212,391
Less:
	Design supplies		$17,919
	Salary of Samantha Spade (owner)		82,415
	Salary of Kim Bridesdale (full-time employee)		55,977
	Rent		19,156
	Utilities		7,540
	Depreciation of office equipment		3,940
	Printing of advertising materials		731
	Advertising in Middleton Journal		3,100
	Travel expenses other than depreciation of autos		2,910
	Depreciation of company cars		9,800		203,488
Net income					$8,903

Calculate the impact of the exhibit on company profit. (Round intermediate calculations to 4 decimal places, e.g. 0.3215 and final answer to 0 decimal places, e.g. 125.)

Company profit will (decrease or increase) by how much?

Should the company exhibit at the home show? (yes or no)

Answer 1

“ The Company profit will Increase by $ 21,449 “

In this question, design supplies and travel are the only variable and are assumed to vary with revenue.

Design Supplies as a percent of revenue

$17,919 ÷ $212,391                                                      0.0844

Travel as a percent of revenue

$2910 ÷ $212,391                                                                   0.0137

Increase in revenue                                                        $40,270

Less: Cost of exhibit space                                            $ 14,870

Increase in supplies ($40,270 x 0.0844)                        $ 3,399

Increase in travel ($40,270 x 0.0137)                                      $ 552

Increase in profit (40270-14870-3399-552)                           $ 21,449

“ Company profit will Increase by $ 21,449 “

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