Flingers Inc They Plan to Aggressively Pursue Cost Savings in the Purchasing

question 17

Essay

Flingers Inc. reveals the following information in their annual report for FY 2017
$$\begin{array}{l}\text { Earnings and Expenses }\\\begin{array} { | l | c | } \hline \text { Sales } & \$ 10,000,000 \\\hline \text { Cost of goods sold } & \$ 5,000,000 \\\hline \text { Pretaxearnings } & \$ 500,000 \\\hline & \\\hline \text { Selected Balance Sheet Items } & \\\hline \text { Merchandise inventory } & \$ 80,000 \\\hline \text { Total assets } & \$ 2,000,000 \\\hline\end{array}\end{array}$$ They plan to aggressively pursue cost savings in the purchasing area for FY 2018 and expect to lower their cost of goods sold by 8% while maintaining the same level of sales. Calculate Flingers' leverage effect for 2017and their expected leverage effect for 2018. Compare the two results for your leverage effect calculations and provide insight as their relative magnitude.

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Definitions:

Rationalize

Rationalizing is the process of eliminating the square root or imaginary number from the denominator of a fraction.

Simplify

To simplify in mathematics means to alter an expression to a more concise, equivalent form, making it easier to work with or understand.

Expression

A combination of symbols, numbers, and operators (+, -, *, /) that together define a mathematical quantity or relationship.

Simplify

The process of altering an expression to make it easier to understand or work with, often by reducing it to its most basic form.