Travon's Limo Service Provides Transportation Services in and Around Bentonville

Travon's 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. $$\begin{array} { l r r } & \begin{array} { c } \text { Travon's Limo Service } \\\text { Annual Income Statement } \\\text { Before Expansion }\end{array} & \\\text { Sales Revenue } & & \$ 960,000 \\\text { Costs: } && \\\quad \text { Vehicle leases } & \$ 400,000 & \\ \text { Labor } & 290,000 & \\\text { Utilities } & 50.000& \\\text { Rent } & 100,000 & \\\text { Other Costs } & 60,000& \\\quad \text { Manager's Salary } & 120,000& \\\text { Total Costs } & &1,020,000 \\\text { Operating Profit (Loss) }&&\$ ( 60.000 )\end{array}$$
a. Prepare a report of the differential costs and revenues if the delivery service is added.
b. Should management start up the delivery service? Explain your answer.