Which of the following best describes the result of 'sales revenue minus variable expenses'?

• A. Operating Income
• B. Contribution Margin
• C. Gross Profit
• D. Net Sales

Answer: (B)

Verified step by step guidance

1. Understand the concept of Contribution Margin: Contribution Margin is the amount remaining after deducting variable expenses from sales revenue. It represents the portion of sales revenue that contributes to covering fixed costs and generating profit.
2. Identify the components in the problem: Sales revenue refers to the total income generated from selling goods or services. Variable expenses are costs that change directly with the level of production or sales, such as materials and labor.
3. Apply the formula for Contribution Margin: Contribution Margin = Sales Revenue - Variable Expenses. This formula helps calculate the amount available to cover fixed costs and contribute to profit.
4. Differentiate Contribution Margin from other terms: Gross Profit is calculated as Sales Revenue minus Cost of Goods Sold (COGS), which includes both fixed and variable costs. Operating Income is the profit after deducting all operating expenses, including fixed and variable costs. Net Sales is the total sales revenue after deducting returns, allowances, and discounts.
5. Conclude that the correct term for 'sales revenue minus variable expenses' is Contribution Margin, as it specifically represents the result of this calculation.