Answered: Sales $510 Cost of outsourced…

Sales $510 Cost of outsourced facilitating goods Cost of in-house services provided 210 199 Administrative costs 77 Pretax earnings 24

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter14: Decentralized Operations

Section: Chapter Questions

Problem 14.3E

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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?

Sales
$510
Cost of outsourced facilitating goods
Cost of in-house services provided
210
199
Administrative costs
77
Pretax earnings
24

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