If an organization wants to make a profit,it must generate more sales revenue than the total costs it incurs.This relation can be expressed using which of the following profit equations?
A)Operating income = [Sales price per unit - Fixed cost per unit x # units produced] - Variable cost
B)Operating income = [Contribution margin per unit x # units sold] - Fixed costs
C)Operating income = Sales revenue - Total variable costs - Committed costs
D)Operating income = Sales revenue - Product costs - Discretionary costs

Question

Quizplus · Accepted Answer

Option B represents the formula for calculating operating income or profit, considering both the contribution margin and fixed costs. The contribution margin is the revenue generated by each unit after deducting the variable costs per unit. By multiplying the contribution margin per unit by the number of units sold, we get the total contribution to covering the fixed costs and earning a profit. Hence, option B is the best choice for the given question. Options A, C, and D represent different profit equations, but they do not consider both the contribution margin and fixed costs, which are crucial to calculating operating income.

If an Organization Wants to Make a Profit,it Must Generate