1. Campus Package Delivery (CPD) provides transportation services in and around Paradise. Its profits have been declining, and management is planning to add a package express service that is expected to increase revenue by $295,000 per year. The total cost to lease the necessary package delivery vehicles from the local dealer is $26,000 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.

CAMPUS PACKAGE DELIVERY Annual Income Statement before Expansion

Sales revenue

$

753,000

Costs

Vehicle leases

293,000

Labor

222,000

Utilities

30,000

Rent

78,000

Other costs

32,000

Manager's salary

125,000

Total costs

$

780,000

a.

Prepare a report of the differential costs and revenues if the express service is added. CAMPUS PACKAGE DELIVERY Income Statement Status Quo:Alternative:No Express Service With Express Service Difference Sales revenue $753,000 ? ? Costs Vehicle leases $293,000 ? ? Labor 222,000 ? ? Utilities 30,000 ? ? Rent 78,000 ? ? Other costs 32,000 ? ? Manager's Salary 125,000 ? ? Total costs $780,000 $954,000 $174,000 Operating profit (loss) $(27,000) ? ?

b.	Should management start the express service? Yes or No?

Operating profit (loss)

$

(27,000

)