(3) Exercise 7-4 / Incremental Analysis
Rustic 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 $13,000 for space. At the show, Rustic Interiors will present a slide show on a PC, pass out brochures that were printed previously (the company printed more that needed), and show its portfolio of previous jobs.
The company estimates that revenue will increase by $40,000 over the next year as a result of the exhibit. For the previous year, profit was as follows:
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Calculate the impact of the exhibit on company profit. Should the company exhibit at the home show?
We need to look at the incremental revenue and incremental costs to make the decision.
As given, the expected incremental revenue is $40,000
The incremental costs are
Cost of space ...
The solution explains how to do a incremental analysis and determine the impact on profits.