When variable and fixed costs are added together, what financial metric is obtained?

• A. Net sales
• B. Total costs
• C. Operating income
• D. Gross profit

Answer: (B)

Verified step by step guidance

1. Understand the concept of costs: In financial accounting, costs are typically divided into two categories: variable costs (which change with the level of production or sales) and fixed costs (which remain constant regardless of production or sales levels).
2. Recognize the formula for total costs: Total costs are calculated by summing variable costs and fixed costs. This is expressed mathematically as: $\mathrm{Total}\mathrm{Costs}=\mathrm{Variable}\mathrm{Costs}+\mathrm{Fixed}\mathrm{Costs}$.
3. Differentiate total costs from other financial metrics: Net sales refer to the revenue generated from selling goods or services, operating income is the profit after deducting operating expenses, and gross profit is the difference between net sales and the cost of goods sold. None of these metrics directly represent the sum of variable and fixed costs.
4. Apply the concept to the problem: When variable and fixed costs are added together, the resulting financial metric is total costs, as per the formula above.
5. Review the options provided: Among the choices (Net sales, Total costs, Operating income, Gross profit), the correct answer is 'Total costs' because it directly represents the sum of variable and fixed costs.