Travon's Limo Service provides transportation services in and around Bentonville. 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. However, labor and utilities costs will increase by 40% and rent and other costs will increase by 15% when the package delivery service is added. Sales Revenue $960,000 Costs: Vehicle leases $400,000 Labor 290,000 Utilities 50,000 Rent 100,000 Other costs 60,000 Manager's Salary 120,000 Total Costs 1,020,000 Operating Loss $ (60,000) Required: Prepare a report of the differential costs and revenues if the delivery service is added.

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Travon's Limo Service provides transportation services in and around Bentonville. 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. However, labor and utilities costs will increase
by 40% and rent and other costs will increase by 15% when the package delivery service is added.
Sales Revenue
$960,000
Costs:
Vehicle leases
$400,000
Labor
290,000
Utilities
50,000
Rent
100,000
Other costs
60,000
Manager's Salary
120,000
Total Costs
1,020,000
Operating Loss
$ (60,000)
Required:
Prepare a report of the differential costs and revenues if the delivery service is added.
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Transcribed Image Text

Travon's Limo Service provides transportation services in and around Bentonville. 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. However, labor and utilities costs will increase by 40% and rent and other costs will increase by 15% when the package delivery service is added. Sales Revenue $960,000 Costs: Vehicle leases $400,000 Labor 290,000 Utilities 50,000 Rent 100,000 Other costs 60,000 Manager's Salary 120,000 Total Costs 1,020,000 Operating Loss $ (60,000) Required: Prepare a report of the differential costs and revenues if the delivery service is added.