A service company has the following financial information (in
millions of $)
| Sales | $ | 510 |
| Cost of outsourced facilitating goods | 210 | |
| Cost of in-house services provided | 199 | |
| Administrative costs | 77 | |
| Pretax earnings | 24 | |
(Do not round intermediate calculations. Round answers to 1
decimal place.)
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 this have on earnings increase in
percentage?
c. What is the profit leverage effect of in-house services relative
to profits?
