(TCO 3) Cindy’s Limo Service provides transportation services in and around Middleville.

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February 12, 2020
TCO F) Nic Saybin Enterprises’ accounting department collects all pertinent monthly
February 12, 2020

(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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