Answer
For a merchandising company to measure income, we compare the selling price against the cost of the item and the operating expense.
Work Step by Step
For example, consider if you buy a coat for 5 dollars and use 2 dollars to travel to the market and then manage to sell the coat for 15 dollars. When measuring income, we will add 5 dolars (cost of goods sold) to 2 dollars (operating expense) to get 7 dollars. We then subtract the selling price (15 dollars), making your income is $8.
