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 $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