Advanced Package Service (APS) offers overnight package delivery to business customers. APS has recently decided to expand its facilities to better satisfy current and projected demand. Current volume totals three million packages per week at a price of $15 each, and average variable costs are constant at all output levels. Total fixed costs are $4 million per week, and profit contribution averages one-fourth of revenues on each delivery. After completion of the expansion project, total fixed costs will increase by 50%, but variable costs will decline by 25%.
A. Calculate the change in APS's weekly breakeven output level that is due to expansion.
B. Assuming that volume remains at three 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 three million packages per week, what is the effect of expansion on weekly profit?