A service company has the following financial information (in millions of $) Sales .............................................................. $510 Cost of

Question:

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
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?