Profit formula: Which statement is correct?

Profit formula: Which statement is correct?

• A. Profit = Revenue - Fixed costs
• B. Profit = Revenue - Variable costs
• C. Profit = Revenue - Variable costs = Contribution - Fixed costs
• D. Profit = Contribution - Fixed costs

Answer: (C)

Profit is what’s left after all costs are covered, and it helps to split costs into variable (changing with output) and fixed (unchanging). The amount you get when you subtract variable costs from revenue is the contribution—the money available to cover fixed costs and, after those are covered, to become profit. So profit can be written as revenue minus variable costs, and that same amount equals contribution minus fixed costs. This makes the option that shows both expressions the clearest and most complete statement of how profit relates to revenue, variable costs, fixed costs, and contribution. The other options miss parts of the picture: subtracting fixed costs from revenue ignores variable costs, and subtracting variable costs from revenue gives contribution, not final profit, until fixed costs are accounted for.

Profit is what’s left after all costs are covered, and it helps to split costs into variable (changing with output) and fixed (unchanging). The amount you get when you subtract variable costs from revenue is the contribution—the money available to cover fixed costs and, after those are covered, to become profit. So profit can be written as revenue minus variable costs, and that same amount equals contribution minus fixed costs. This makes the option that shows both expressions the clearest and most complete statement of how profit relates to revenue, variable costs, fixed costs, and contribution. The other options miss parts of the picture: subtracting fixed costs from revenue ignores variable costs, and subtracting variable costs from revenue gives contribution, not final profit, until fixed costs are accounted for.