Question

Campus Package Delivery (CPD) provides delivery services in and around Paradise. Its profits have been declining, and management is planning to add an express service that is expected to increase revenue by $320,000 per year. The total cost to lease the necessary additional package delivery vehicles from the local dealer is $22,000 per year. The present manager will continue to supervise all services at no increase in salary. Due to expansion, however, the labor costs and utilities would increase by 50 percent. Rent and other costs will increase by 20 percent. Required: a. Prepare a report of the differential costs and revenues if the express service is added. (Enter all amounts os positive numbers.) Campus Package Delivery Income Statement Status Quo Alternative: No Express With Express Service Service S 770,000 Sales revenue Costs Vehicle leases Labor Ubilities Rent 310,000 229,000 30,000 78.000 39.000 147.000 80.000 33.000) Other costs Manager's Salary Total costs Operating profits S

Answer 1

Solution:

Campus Package Delivery
Income statement
Particulars	Status Quo: No express Service	Alternative: With express Service	Difference
Sales revenue	$770,000.00	$1,090,000.00	$320,000.00
Costs:
Vehicle leases	$310,000.00	$332,000.00	$22,000.00
Labor	$229,000.00	$343,500.00	$114,500.00
Utilities	$30,000.00	$45,000.00	$15,000.00
Rent	$78,000.00	$93,600.00	$15,600.00
Other costs	$39,000.00	$46,800.00	$7,800.00
Manager's salary	$117,000.00	$117,000.00	$0.00
Total costs	$803,000.00	$977,900.00	$174,900.00
Operating profit (loss)	-$33,000.00	$112,100.00	$145,100.00