Question

in 200 words or more, what are some ways in learning to understand revenue and cost relationships? What is the different between the two? Give an example

Answer 1

Revenue involves the proceed from the sales of goods and services by companies. It is the top line of the company. It is the sum of all receipts from the customers. Revenue = Sale Price * No of Units.  Costs involves all the expenditure to suppliers, employees, operating expenditures, depreciation, etc incurred by the company. Cost include COGS = Cost of Raw Material * Units, Salaries and other operating costs .Revenue deducted with costs gives us profit or bottom line. For obtaining higher revenue number of units sold can be increased or the price per unit can be increased. For increasing bottom line reducing costs also helps . This includes reducing cost of goods by negotiating with suppliers, reducing operating costs, employing more temporary workers, etc. The difference between revenue and costs gives us gross margin.

Revenue must be higher than costs to gain profit. Also in some firm price of goods is a function of the cost of the goods. Revenue does not cause cash inflow immediately . Similarly costs does not cause cash outflow immediately. Both their timing from cash flow might be different.

Examples of Revenue: Proceeds from Sales of Goods, Services and can be income for mother investments which are non operating income.

Examples of Costs: Cost of raw material, electricity cost, employee and administrative cost,depreciation,etc.

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