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 $400,000 per year. The total cost to lease the necessary package delivery vehicles from the local dealer is $30,000 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.
b. Should management start the deliveryservice?

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PETE'S TAXI & LIMO Annual income Statement before Expansion 4 Sales revenue 5 Coats 6 Vehicle leases 7 Labor 8 Utilities 9 Rent 10 Other costs 11 Manager's salary 12 Total costo 13 Operating profit (loas) 14 S 1,216,000 480,000 384,000 64,000 128,000 64,000 S1312000