Problem 1: (10 points)

Travons 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.

Travons 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 Loss $ (60,000)

Required:

1. Prepare a report of the differential costs and revenues if the delivery service is added.

Problem 2: (10 points)

Michael Corporation has provided the following data for the month of July:

Sales $280,000

Raw materials purchases 76,000

Direct labor costs 42,000

Manufacturing overhead 77,000

Selling expenses 20,000

Administrative expense 35,000

Inventories: Beginning Ending

Raw materials $22,000 $33,000

Work-in-process 15,000 23,000

Finished goods 52,000 43,000

Required:

1. Prepare a Statement of Cost of Goods Manufactured for July.