Financial Implications of Hiring Joan and Employing an Admin Assistant

This article discusses the financial implications of hiring Joan for five days a week instead of three days per week and employing an admin assistant. It also recommends the option that leads to the highest incremental profit generation for the firm.

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Question 1
The financial implications of the various options are as highlighted below.
Option 1: Hire Joan for five days a week instead of three days per week currently
Joan’s wages when she works for three days a week = £ 18,000
Since the wage rate remains the same, hence Joan’s wages when she works for five days a
week would be 18000*(5/3) = £ 30,000
Hence, incremental salary paid to Joan = 30000 – 18000 = £ 12,000 per annum
Incremental door sales = £ 15,000
Incremental maintenance sales = £ 3,000
Total incremental sales = 15000 + 3000 = £ 18,000
Incremental consumables required = £ 1,000
Hence, incremental profits under this option = Incremental sale – Incremental costs = 18000
– (12000+1000) = £ 5,000
Option 2: Employing an admin assistant
Incremental door sales = £ 6,000
Incremental maintenance sales = £ 1,500
Total incremental sales = 6000 + 1500 = £ 7,500
Incremental consumables required = £ 500
Incremental salary to assistant = £ 9,000 per annum
Hence, incremental profits under this option = Incremental sale – Incremental costs = 7500 –
(9000 +500) = - £ 2,000
Option 3: Both
Incremental door sales = £ 6,000 + £ 15,000 = £ 21,000
Incremental maintenance sales = £ 1,500 + £ 3,000 = £ 4,500

Total incremental sales = 21000 + 4500 = £ 25,500
Incremental consumable = 1000 + 500 = £ 1,500
Incremental salary to Joan = £ 12,000 per annum
Incremental salary to admin assistant = £ 9,000 per annum
Incremental salary expense = 12000 + 9000 = £ 21,000
Hence, incremental profits under this option = Incremental sale – Incremental costs = 25500
– (21000 + 1500) = £ 3,000
Question 2
The option that must be recommended should be one which leads to the highest incremental
profit generation for the firm. This is imperative since the objective is to maximise profit.
Further, as highlighted above, only the incremental revenues and costs ought to be considered
and the existing sales and costs are irrelevant. Any action which leads to incremental option
is positive for the company as the overall profits would increase (Brealey, Myers and Allen,
2014). The incremental profit generated for each of the three options is summarised in the
table as follows.
Considering the above, it would make sense to deploy option 1 since the incremental profits
would be maximised in this case. This implies that Joan should be employed for five days
weekly instead of three days weekly at the same wage rate as currently applicable
(Damodaran, 2015).

References
Brealey, R. A., Myers, S. C. and Allen, F. (2014) Principles of corporate finance, 6th ed. New
York: McGraw-Hill Publications
Damodaran, A. (2015). Applied corporate finance: A user’s manual 3rd ed. New York:
Wiley, John & Sons.