Question

Untouchable Package Service (UPS) offers overnight package delivery to Canadian business customers. UPS has recently decided to expand its facilities to better satisfy current and projected demand. Current volume totals two million packages per week at a price of $12 each, and average variable costs are constant at all output levels. Fixed costs are $3 million per week, and profit contribution averages one-third of revenues on each delivery. After completion of the expansion project, fixed costs will double, but variable costs will decline by 25%.
A. Calculate the change in UPS's weekly breakeven output level that is due to expansion.
B. Assuming that volume remains at two million packages per week, calculate the change in the degree of operating leverage that is due to expansion.
C. Again assuming that volume remains at two million packages per week, what is the effect of expansion on weekly profit?



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  • CreatedFebruary 13, 2015
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