Question: Cindy's Limo Service provides transportation services in and around Middleville. Its profits have been declining, and management is planning to add a package delivery service that is expected to increase revenue by $275,000 per year. The total cost to lease additional delivery vehicles from the local dealer is $60,000 per year. The present manager will continue to supervise all services. Due to expansion, however, the labor costs and utilities will increase by 40%. Rent and other costs will increase by 15%. Cindys Limo Service Annual Income Statement Before Expansion Sales revenue $960,000 Costs: Vehicle leases 400,000 Labor 290,000 Utilities 50,000 Rent 100,000 Other costs 60,000 Managers salary 120,000 Total costs Operating profit (loss) $1,020,000 $(60,000) What are the total differential costs that will be incurred as a result of the expansion?
Question: Cindy's Limo Service provides transportation services in and around Middleville. Its profits have been declining, and management is planning to add a package delivery service that is expected to increase revenue by $275,000 per year. The total cost to lease additional delivery vehicles from the local dealer is $60,000 per year. The present manager will continue to supervise all services. Due to expansion, however, the labor costs and utilities will increase by 40%. Rent and other costs will increase by 15%. Cindys Limo Service Annual Income Statement Before Expansion Sales revenue $960,000 Costs: Vehicle leases 400,000 Labor 290,000 Utilities 50,000 Rent 100,000 Other costs 60,000 Managers salary 120,000 Total costs Operating profit (loss) $1,020,000 $(60,000) What are the total differential costs that will be incurred as a result of the expansion?
Chapter21: Risk Management
Section: Chapter Questions
Problem 5P
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Transcribed Image Text:Question:
Cindy's Limo Service provides transportation services in and around Middleville. Its profits have been declining, and
management is planning to add a package delivery service that is expected to increase revenue by $275,000 per
year. The total cost to lease additional delivery vehicles from the local dealer is $60,000 per year. The present
manager will continue to supervise all services. Due to expansion, however, the labor costs and utilities will increase
by 40%. Rent and other costs will increase by 15%.
Cindys Limo Service
Annual Income Statement
Before Expansion
Sales revenue
$960,000
Costs:
Vehicle leases
400,000
Labor
290,000
Utilities
50,000
Rent
100,000
Other costs
60,000
Managers salary
120,000
Total costs
Operating profit (loss)
$1,020,000
$(60,000)
What are the total differential costs that will be incurred as a result of the expansion?
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