Exercise 7-4 Greencastle Interiors, an interior design company, has experienced

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:

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.)

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

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

Explanation / Answer

“ 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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