Solution Question:Cindy's Limo Service provides transportation services in and around Middleville. Its profits have been declining, andmanagement is planning to add a package delivery service that is expected to increase revenue by $275,000 peryear. The total cost to lease additional delivery vehicles from the local dealer is $60,000 per year. The presentmanager will continue to supervise all services. Due to expansion, however, the labor costs and utilities will increaseby 40%. Rent and other costs will increase by 15%.Cindys Limo ServiceAnnual Income StatementBefore ExpansionSales revenue$960,000Costs:Vehicle leases400,000Labor290,000Utilities50,000Rent100,000Other costs60,000Managers salary120,000Total costsOperating profit (loss)$1,020,000$(60,000)What are the total differential costs that will be incurred as a result of the expansion?

To calculate the total differential costs incurred due to the expansion, we'll consider the changes…

Answered: Question: Cindy's Limo Service provides…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 10EB: Keleher Industries manufactures pet doors and sells them directly to the consumer via their web...

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Kevin's Transportation provides services in Greater Cincinnati. Management is concerned because the company's profits have been declining, so they are planning to add a delivery service that is expected to increase revenue by $285,000 per year. The total cost to lease additional vehicles from a local dealer is $75,000 per year. The current manager will continue to supervise all daily operations. Labor and utilities costs will increase by 40% and rent and other costs will increase by 15% when the new service is added. Kevin's Transportation Annual Income Statement Before New Service Sales Revenue Costs: Vehicle Leases Labor Utilities Rent Other Costs Manager's Salary Total Costs Operating Profit (Loss) $ 400,000 290,000 50,000 100,000 60,000 120,000 $ 960,000 1,020,000 $ (60,000) a. Prepare a report of the differential costs and revenues if the delivery service is added, b. Should management start up the delivery service? Explain your answer.
Artisan Metalworks has a bottleneck in their production that occurs within the engraving department. Jamal Moore, the COO, is considering hiring an extra worker, whose salary will be $55,000 per year, to solve the problem. With this extra worker, the company could produce and sell 3,000 more units per year. Currently, the selling price per unit is $25 and the cost per unit is $7.85. Using the information provided, calculate the annual financial impact of hiring the extra worker.
At Stardust Gems, a faux gem and jewelry company, the setting department is a bottleneck. The company is considering hiring an extra worker, whose salary will be $67,000 per year, to ease the problem. Using the extra worker, the company will be able to produce and sell 9,000 more units per year. The selling price per unit is $20. The cost per unit currently is $15.85 as shown: What is the annual financial impact of hiring the extra worker for the bottleneck process?
Shonda & Shonda is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1.200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are as follows: A. What will be the impact on the break-even point if Shonda & Shonda purchases the new computer? B. What will be the impact on net operating income if Shonda & Shonda purchases the new computer? C. What would be your recommendation to Shonda & Shonda regarding this purchase?
Talbot Industries is considering launching a new product. The new manufacturing equipment will cost 17 million, and production and sales will require an initial 5 million investment in net operating working capital. The companys tax rate is 40%. a. What is the initial investment outlay? b. The company spent and expensed 150,000 on research related to the new product last year. Would this change your answer? Explain. c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for 1.5 million after taxes and real estate commissions. How would this affect your answer?
Keleher Industries manufactures pet doors and sells them directly to the consumer via their web site. The marketing manager believes that if the company invests in new software, they will increase their sales by 10%. The new software will increase fixed costs by $400 per month. Prepare a forecasted contribution margin income statement for Keleher Industries reflecting the new software cost and associated increase in sales. The previous annual statement is as follows:
Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?
An auto parts Company produces various extra additions to motor cars. It has just discovered an opportunity to invest in producing air conditioners for the back seats of vans and minibuses. The investment project will cost $925,000 and will generate an estimated additional operating income of $95,500. Without the investment, the company will have average assets for the coming year of $29.5 million and expected operating income of $4.535 million. Required: What is the ROI of the new investment project alone? Is it higher or lower than the existing ROI of the company? What will be the ROI of the company after accepting the new investment? Assuming that the managers are evaluated and rewarded on the basis of ROI performance, should a rational manger make the new investment? Why? Suppose that the company sets a minimum required rate of return to 11%. What will be the ‘Residual Income’ of the company after accepting the new investment? Is it higher or lower than the Residual…
A 90-room motel has an average room rate of $64 and average occupancy of 77%. Its fixed costs are $800,000 a year, and its variable costs total $500,000. The owner wants to increase operating income from current level to $250,000. She decides to do the following adjustments: increase price by $6 spend $30,000 more per year on marketing to compensate for the higher room rate To motivate the staff, the owner also set a $2,000 reward to the best employee Send guest fruits to each room, which costs $5 per room How many rooms does she need to sell per night?
Lou Lewis, the president of Lewisville Company, has asked you to give him an analysis of the best use of a warehouse the company owns. Lewisville Company is currently leasing the warehouse to another company for $5,800 per month on a year-to-year basis. (Hint: Use the PV function in Excel to calculate, on an after-tax basis, the PV of this stream of monthly rental receipts.) Lewisville Company is seriously considering converting the warehouse into a factory outlet for furniture. The remodeling will cost $140,000 and will be modest because the major attraction will be rock-bottom prices. The remodeling cost will be depreciated over the next 5 years using the double-declining-balance method. (Note: Use the VDB function in Excel to calculate depreciation charges. The advantage of using the VDB, rather than the DDB, function is that there is a (default) option in the former that provides an automatic switch to the straight-line method when it is advantageous to do so.) The inventory and…
Delta Sonic, a chain of full service automotive detailers, is considering introducing a new 15-minute car wash and wax service at one of its Chicago locations. The company expects that sales from the new 15-minute service will be $145,000 per year. Delta Sonic currently offers a 1-hour wash/wax/detail service with annual sales of $267,500. While many of the 15-minute sales will be to new customers who, in the past, could not wait a full hour to have their car detailed, Delta Sonic estimates that 10% of their 1-hour sales will be lost as a result of existing customers switching to the new, faster service. The level of incremental sales associated with introducing the new 15-minute wash/wax service that should be used when analyzing this project is closest to O A. $171,750 B. $14,500 C. $145,000 O D. $26,750 O E. $118,250

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