Based on the Income Statements Shown Below, Which Division Has

question 123

Multiple Choice

Based on the income statements shown below, which division has the cost structure with the highest operating leverage? $$\begin{array} { | l | c | c | c | } \hline & \text { Soft Drinks } & \text { Bottled Water } & \text { Frust Juices } \\\hline \text { Revenue } & \$ 50,000 & \$ 50,000 & \$ 50,000 \\\hline \text { Variable costs } & ( 10,000 ) & ( 5000 ) & ( 30,000 ) \\\hline \text { Contribution margin } & 40,000 & 45,000 & 20,000 \\\hline \text { Fixed costs } & ( 30,000 ) & ( 40,000 ) & ( 10,000 ) \\\hline \text { Net income } & \$ 10,000 & \$ 5,000 & \$ 10,000 \\\hline\end{array}$$

• A)Bottled Water.
• B)Fruit Juices.
• C)Soft Drinks.
• D)The three divisions have identical operating leverage.

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Definitions:

Bad Debt Expense

An expense account reflecting amounts that are expected to be uncollectible from customers' credit sales.

Bad Debt Expense

An estimated expense that represents the amount of receivables a company does not expect to collect due to customer defaults.

Allowance for Doubtful Accounts

A financial accounting provision representing the estimated amount of receivables that may not be collected.

Receivables

Amounts owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.