If an Organization Wants to Make a Profit, It Must

question 134

Multiple Choice

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

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Definitions:

Capital

Financial assets or the financial value of assets, such as cash, used by a business to fund its operations and investments.

Levered

Refers to the use of debt (borrowed funds) to amplify the potential return of an investment.

Bankruptcy

A legal proceeding involving a person or business that is unable to repay their outstanding debts, leading to the assets being allocated to creditors.

Indirect Costs

Expenses that are not directly attributable to a specific product or activity but are necessary for the business's operation, such as utilities or administrative salaries.