Exercise E7-4 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 are printed previously, (the company printed more than 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:

Revenue $210,000

Less:

Design supplies $16,000

Salary of samantha spade (Owner) 82,000

Salary of kim (full time employee) 56,000

Rent 19,000

Utilities 7,000

Depreciation of office equipment 4,000

Printing of advertising materials 800

Advertising in middleton journal 3,000

Travel expenses other then depreciation of autos 2,500

Depreciation of company cars 10,000 200,300

Net income $9,700

Calculate the impact of the exhibit on company profit. Should the company exhibit at the home show?

Supplies as a percent of revenue Percentage

Travel as a percent of revenue ?Percentage?

Increase in revenue ?Amount?

Less:

Title? ?Amount?

Title? ?Amount?

Title? ?Amount?

Increase in profit ?Formula?

Title? ???????

__________________________________________________________________________________________

Problem P7-4 Make-or-Buy Decision

For most construction projects, Bradley Heating and Cooling buys sheet metal and forms the metal into heating/cooling ducts as needed. The company estimates the costs of making and installing ductwork for Kerry Park shopping mall to be as follows:

Materials $35,000

Labor to form ductwork 3,000

Labor to install ductwork 9,000

Misc. variable costs 1,500

Fixed costs allocated based on labor hours 3,000

Total costs $51,500

The fixed costs relate to the company's building equipment, and office staff. The company plans on billing the Kerry Park
developer	$68,000	or services. Bradley is currently behind schedule on other projects and is paying a late penalty of
$1,200	per day. Walt Bradley, the owner of Bradley Heating and Cooling, is considering ordering prefabricated ductwork for
the Kerry Park job. The prefabricated ductwork will cost					$40,000	(including the cost of sheet metal). If Walt
buys the prefabricated ductwork, he'll be able to reassign workers to another project and avoid							5	days of
late fees. Required: Should Bradley make the ductwork or buy it prefabricated? Dont Buy Prefabricated Buy Prefabricated Buy Difference Materials ?Amount? ?Amount? ?Formula? Title ?Amount? ?Amount? ?Formula? Title ?Amount? ?Amount? ?Formula? Title ?Amount? ?Amount? ?Formula? Title ?Amount? ?Amount? ?Formula? Title ?Amount? ?Amount? ?Formula? Total ?Formula? ?Formula? ?Formula?