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 - Variable cost per unit) × # units sold] - Fixed cost
B)Operating income = [Sales price per unit - Fixed cost per unit) × # units produced] - Variable cost
C)Operating income = Sales revenue - Total variable costs - Discretionary costs
D)Operating income = Sales revenue - Committed costs - Fixed costs

Question

Quizplus · Accepted Answer

Option A is the correct equation for calculating profit as it takes into account the sales price per unit and variable cost per unit, as well as the fixed cost. Options B, C, and D are not accurate representations of the profit equation. Option B only includes one type of cost, either fixed or variable, but not both. Option C includes discretionary costs which are not always applicable to all organizations, and Option D includes committed costs which again may not apply to all organizations.

If an Organization Wants to Make a Profit, It Must