Sales $510 Cost of outsourced facilitating goods Cost of in-house services provided 210 199 Administrative costs 77 Pretax earnings 24
Sales $510 Cost of outsourced facilitating goods Cost of in-house services provided 210 199 Administrative costs 77 Pretax earnings 24
Chapter5: Operating Activities: Purchases And Cash Payments
Section: Chapter Questions
Problem 2.7C
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Question
A service company has the following financial information (in millions of $)
a. What is the profit leverage effect of reducing the cost of the facilitating goods in this company?
b. It has been suggested that the in-house services costs could be reduced by 10 percent in the coming year by implementing lean systems. What effect would thiso
have on earnings increase in percentage?
c. What is the profit leverage effect of in-house services relative to profits?
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