Gentech, Inc A)013
B)1

question 68

Multiple Choice

Gentech, Inc. is an integrated circuit (microchip) manufacturer based out of New Jersey. Its principal products include microprocessors and motherboard chipsets. Selected financial statement values for Gentech are shown in the table, below. What is the degree of operating leverage for Gentech given the change in revenues from Year 1 to Year 2? $$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Gentech Inc. } \\( \$ 000 \text { s } ) \end{array} & & \\\hline & \text { Year 1 } & \text { Year 2 } \\\hline \text { Revenues } & \$ 70,000 & \$ 75,000 \\\hline \begin{array} { c } \text { Cost of Goods } \\\text { Sold }\end{array} & 45,000 & 48,500 \\\hline \text { SG\&A } & 13,000 & 13,500 \\\hline \text { Depreciation } & 3,000 & 3,200 \\\hline \text { EBIT } & 9,000 & 9,800 \\\hline\end{array}$$

• A)0.13
• B)1.17
• C)1.00
• D)1.24
• E)0.75

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Definitions:

Market System

An economic model where the decision-making process regarding investments, production activities, and the distribution of goods adheres to the supply and demand dynamic, with goods and services' pricing governed by a free market mechanism.

Employees

Individuals who work for another person or company in exchange for financial or other compensation.

Suppliers

Entities or individuals that provide goods or services to another entity, typically within a supply chain context.

Capitalism

An economic system where private individuals own and control the means of production and distribution of goods, with minimal government interference.