Reference no: EM131697574

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