Final answer:
Before determining the operating income for a manufacturer, the cost of goods sold (COGS) must first be calculated. COGS is the cumulative cost of producing the goods which a company sells, leading to the calculation of gross profit, which precedes the calculation of operating income. The correct option is option (c)
Step-by-step explanation:
Determining Operating Income for a Manufacturer
To ascertain the operating income of a manufacturing business, one must first calculate the cost of goods sold (COGS). COGS represents the direct costs attributable to the production of the goods sold by a company. This includes the materials, labor, and overhead costs directly involved in manufacturing the products. Once COGS is subtracted from the net sales, we arrive at the gross profit, which is an interim step before computing the operating income.
Operating income, also known as operating profit, excludes other incomes and expenses not directly related to the core business operations, such as interest, taxes, and unique or irregular gains and losses. Therefore, it's calculated after gross profit but before net income. The formula for operating income is simple: Operating Income = Gross Profit - Operating Expenses. The operating expenses include rent, equipment, utilities, and other costs necessary to keep the company running but not directly tied to production.
To answer the question: Before operating income can be calculated for a manufacturer, cost of goods sold (COGS) is calculated. The correct answer to the question is c) Cost of goods sold.