Based on the Income Statements Shown Below, Which Division Has

question 7

Multiple Choice

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

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

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Definitions:

Nonrenewable Resource

A natural resource that cannot be replenished or takes millions of years to form again, such as coal, oil, and natural gas.

Future Profits

This concept pertains to the expected earnings or gains that a business anticipates receiving in the upcoming periods.

Current Extraction

The process of removing natural resources, such as minerals or timber, from the earth at the present time.

Increase

A rise or growth in quantity, size, or degree.