Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher

Exercise 6

Cost Data for Managerial Purposes
Pete's Taxi Limo provides transportation services in and around Centerville. Its profits have been declining, and management is planning to add a package delivery service that is expected to increase revenue by $250,000 per year. The total cost to lease the necessary package delivery vehicles from the local dealer is $20,000 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 delivery service is added. (Hint: Use the format of Exhibit 1.3.)b. Should management start the delivery service