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 achieved by subtracting operating expenses from gross margin. Operating expenses include all expenses incurred in the normal course of business, such as salaries, rent, utilities, and depreciation.
Here is the formula to calculate operating income:
Operating Income = Gross Margin – Operating Expenses
The gross margin is the difference between the revenue generated from the sale of goods or services and the cost of goods sold (COGS). COGS includes the direct costs associated with the production or procurement of goods or services, such as raw material costs, labor costs, or shipping charges.
To calculate the gross margin, use this formula:
Gross Margin = Revenue – Cost of Goods Sold
Once you have calculated the gross margin, you can subtract operating expenses from this number to get the operating income.
For example, a company generates $500,000 in revenue and incurs $100,000 in COGS, resulting in a gross margin of $400,000. The company’s operating expenses, including salaries, rent, utilities, and depreciation, total $200,000 for the year. The operating income can be calculated as follows:
Operating Income = Gross Margin – Operating Expenses
Operating Income = $400,000 – $200,000
Operating Income = $200,000
Therefore, the operating income for this company is $200,000.
More Answers:
How to Estimate Return on Equity with Total Revenue: A Guide for Social Science ResearchersUnderstanding Depreciation: The Indirect Impact on a Company’s Cash Balance
Valuation of Assets Acquired through Note Payable: A Guide to Fair Value and Present Value Calculation.