how to get operating income after calculating gross margin
Gross margin operating costs:Var. operating costsfixed operating costsTotal operating costsOperating income
Operating income can be calculated using the following formula:
Operating Income = Gross Margin – Operating Expenses
To get the operating income after calculating the gross margin, you need to subtract the total operating expenses from the gross margin. The gross margin is the difference between the revenue earned and the cost of goods sold. It represents the amount of money generated from the sale of goods or services before deducting the expenses.
The operating expenses include all the expenses incurred in running the business, such as administrative expenses, marketing expenses, rent, utilities, employee salaries, and wages. These expenses need to be deducted from the gross margin to arrive at the operating income.
Here are the steps involved in getting the operating income after calculating the gross margin:
Step 1: Calculate the gross margin. The formula for gross margin is:
Gross Margin = Revenue – Cost of Goods Sold
Step 2: Determine the total operating expenses.
Step 3: Subtract the total operating expenses from the gross margin to get the operating income.
Operating Income = Gross Margin – Operating Expenses
By following these steps, you can calculate the operating income, which represents the profit earned by the business from its operations. This figure is important because it indicates whether the business is profitable or not and helps in making informed business decisions.
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