With a variable cost of $50000 and a fixed cost of $30000, the operating income would be _____________?
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Answer: D. $20,000
Explanation
Operating income is derived by accounting for variable and fixed costs against revenue. Based on the underlying cost structures and margin relations, the net operating income equals $20000. This represents profit before taxes. Operating income measures the profitability resulting from core business operations. It deducts all operating expenses, both variable and fixed, from gross revenues. Financing costs and taxes are excluded from this subtotal.
Investors examine operating income to assess a company's fundamental earning power. It strips out the effects of capital structure and tax strategies. Strong operating income indicates a healthy, viable business model. Option A simply sums the two cost figures together. Option B overstates the income through incorrect scaling. Option C miscalculates the final profit margin.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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