CPIM Practice Exam

Which term describes the money an organization spends to generate goal units?

1. Revenue

2. Profit

3. Operating expense

4. Cost of goods sold

The correct answer is: Operating expense

Operating expense refers to the ongoing costs for running a business, which include the expenses necessary to generate the goods or services that the organization produces. These expenses encompass various operational activities such as rent, utilities, salaries, and other expenditures that are essential for maintaining the day-to-day functions of the company. When an organization focuses on generating goal units, it is essential to understand that operating expenses play a significant role in determining how much it costs to produce these units. This understanding is crucial for budgeting and financial planning, as it directly affects pricing strategies and overall profitability. The other terms, although related to financial performance, have different meanings. Revenue represents the total income generated from sales before any costs are deducted. Profit refers to the amount remaining after all expenses (including operating expenses) are subtracted from revenue, indicating the financial gain of the organization. Cost of goods sold specifically refers to the direct costs attributable to the production of the goods sold by the company, which does not encompass the broader range of operating expenses involved in the overall business operations.