The following data include all the elements from Tuche Millinery's income statement:

Administrative Expense $229
Cost of Goods Sold 259
Gain on Sale of Securities 46
Income Tax Expense 53
Loss on Discontinued Operations 38
Loss on Disposal of Equipment 86
Revenue 866
Selling Expense 124

What is the amount of operating income for Tuche Millinery?

Question

The following data include all the elements from Tuche Millinery's income statement:

Administrative Expense	$229​
Cost of Goods Sold	259
Gain on Sale of Securities	46
Income Tax Expense	53
Loss on Discontinued Operations	38
Loss on Disposal of Equipment	86
Revenue	866
Selling Expense	124

What is the amount of operating income for Tuche Millinery?

BlackTom AI · Accepted Answer

To determine operating income, we focus on revenues and the operating expenses directly tied to producing and selling goods, excluding non-operating items.

First, compute gross profit as Revenue minus Cost of Goods Sold: 866 − 259 = 607. This value represents the profitability from core production before operating expenses.

Next, subtract the operating selling expenses: 607 − 124 = 483. This step accounts for costs directly tied to selling activities.

Then, subtract the administrative expenses: 483 − 229 = 254. Administrative costs are part of ongoing operating expenses and reduce operating income.

Now evaluate the options:
- $607: This equals gross profit (Revenue minus COGS) but does not subtract selling and administrative expenses, so it is not operating income.
- $378: This would be the result if you subtracted only the administrative expenses from gross profit (607 − 229) and did not include the selling expenses, which is incomplete for operating income.
- $254: This matches the correct calculation after deducting both selling and administrative expenses from gross profit, i.e., the operating income.
- $197: This would imply further deductions beyond selling and administrative expenses, or misallocation of items; it does not align with the standard operating-income calculation here.

As a cross-check, non-operating items such as Gain on Sale of Securities (46), Loss on Discontinued Operations (38), and Loss on Disposal of Equipment (86) are not included in operating income by definition, so they do not alter the $254 result.

Therefore, the operating income for Tuche Millinery is $254, and the other numbers arise from misclassifying or omitting operating components.

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