Which Formula Calculates Operating Income

question 21

Multiple Choice

Which formula calculates operating income?

• A) (sales price × units sold) - (unit variable cost × units sold) - fixed cost
• B) (sales price × units sold) + (unit variable cost × units sold) + fixed cost
• C) (sales price + units sold) - (unit variable cost + units sold) - fixed cost
• D) (sales price - units sold) + (unit variable cost - units sold) + fixed cost

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Definitions:

Machine Set-Ups

Machine Set-Ups refer to the preparatory tasks and adjustments made to production equipment before a new production run, aimed at ensuring operational efficiency and quality.

Activity Based Costing

Refers to a detailed approach to understanding the cost associated with specific business activities, aiding in more precise cost management.

Allocation Rate

A rate used to distribute overhead or other costs across various departments, products, or activities based on a specific criteria.

Manufacturing Overhead

All indirect costs associated with the production process, such as facility maintenance, utilities, and managerial salaries.