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) × # units produced] - Variable cost
B)Operating income = [Contribution margin per unit × # 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

The profit equation that best reflects the statement "if an organization wants to make a profit, it must generate more sales revenue than the total costs it incurs" is B. This is because it uses the contribution margin (sales revenue - variable costs) to determine the amount of revenue that is available to cover fixed costs and generate profit. If contribution margin is greater than fixed costs, the organization will make a profit.

If an Organization Wants to Make a Profit, It Must