2 1/2 inch exhaust on a 318...

400 cubic inches (392 IIRC) at 400hp will do fine with 2.5" pipe. If you're looking for a real 500-550, you'll be moving more air, and will need 3" pipes. 2.5 will run decent, but you will be leaving some power on the table with a desired 550hp and 2.5" pipes. On a side note, you'll be spending an awful lot on those 360 heads (or any factory iron) to make that kind of power (500+). You can make the target much easier with Edelbrocks or MP big port Commandos.