The Regal Baking Company is considering the expansion of its business into door-

Question

The Regal Baking Company is considering the expansion of its business into door-to-door delivery service. This would require an additional $14,100 in labor costs per month. Company-owned vehicles now used to make morning deliveries to restaurants could be used in the afternoons to make the home deliveries. However, it is estimated that an additional $6,600 would be required per month for gas, oil, and maintenance. It is further estimated that the home delivery use of the trucks would be allocated 45% of the existing $8,100 fixed vehicle costs. What is the differential delivery cost per month for expanding into the home delivery market?

Explanation / Answer

Costs increased specifically attributable to home delivery market will only be considered as differential costs here. Hence, labor costs and variables costs incurred in relation to home delivery are alone differential costs.

Differential costs:

= $14,100+$6,600

= $20,700

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