(TCO 3) Cindy’s Limo Service provides transportation services in and around Middleville.
(TCO 3) 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
$1,020,000
Operating profit (loss)
$(60,000)
What are the total differential costs that will be incurred as a result of the expansion?
$60,000
$220,000
$196,000
$211,000
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