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There could be a variety of answers to this question, depending on what perspectives you use to answer them. ( accounting, Economics etc ). Using my understanding of Economics, it's important to first have an equation to link all these variables. Profit = Revenue - Cost. This is called the profit equation, where profit equals revenue minus cost. Revenue is the sales that you obtain from day to day sales. It's expressed in a monetary value. For example, if I am able to sell 10 hotdogs today at US dollar 5 for each hotdog, then my revenue for the day will be US Dollars 50. However this is my revenue and not my profit, as I incurred cost while earning this revenue. Lets say the cost of this business is US Dollars 3. If this is the case the profit will be 50 - 3 which equals 47. Hence profit is 47. This equation shows that an increase in cost, can reduce the profit. At some instances, the increase in cost can increase revenue, depending on the price that you are selling and also the quantity sold. This will depend on how large the increase is. Generally if Revenue is more than cost, there is profit, while if Cost is more than revenue that is lost. If Revenue equals Cost, there is break even. This means that the profit is zero. Hope this helps. (

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โˆ™ 2007-05-14 02:26:40
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Q: How does cost affect revenue and profitability?
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Related questions

What is 'Revenue and Profitability'?

Revenue is the income into the company from Sales or the provision of services. Profitability is an assessment of the companies performance where Revenue & Expenditure are compared and the difference is a profit or loss which thereby indicates the profitability of the business. In simple terms its' ability to make a profit or not.

The positive difference between revenue and costs?


What is the difference between profitability and liquidity?

liquidity is how quickly an item can be converted to cash, usually to pay short term debts, profitability is how much money an entity has after taking sales revenue - cost of goods gross margin

What is the Formula for calculating profitability ratios?

profit margin = net income / total revenue

Why does average cost include profit?

it doesn't cost is cost revenue is revenue

How do you find percent of revenue for cost?

cost/revenue x100%

How the consequence of wrong treatment of capital and revenue expenditures might adversely effect the financial reporting?

Non recognition of revenue in the relevant month will ü Lead towards inconsistent application of matching principle ü understate monthly profit Affect profitability ratios

What are performance ratios?

Measure of profitability in relation to sales revenue, this ratio determines the net income earned on the sales revenue generated. Formula: Net income x 100 ÷ Sales revenue.

Does Outsourcing Increase Profitability?

Yes, outsourcing do increase profitability and it also helps companies in saving for the cost of labor.

What is cost of revenue?

Cost of revenue is the amount spent to sell a company's products.

What reasons do companies cut cost?

To increase profitability!

How do you find projected profit?

(Projected revenue) - (Extended Cost) (Projected revenue) - (Extended Cost)

What is the difference between sales revenue and the cost of goods sold?

sales revenue is exactly that, revenue. (income)cost of goods sold is an expense.

What is the difference between Cost of revenue and revenue?

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What is the sales revenue if variable cost is 40000 and fixed cost is 30000 and break sale revenue is 40000?

Sales revenue = breakeven sales + Fixed Cost Sales revenue = 40000 + 30000 sales revenue = 70000 Prove Sales revenue = 70000 Less: V.C = 40000 Contribution Margin = 30000 Less:Fixed Cost = 30000 Profit (loss) = Nill

What is the difference between revenue and cost?

Revenue is the profit made from an activity, while cost is the price something is.

What deference between cost and revenue?

Cost is how much is spent revenue is the annual how much u make

What is the rationale for recognizing costs as expenses at the time of product sale?

Matching Cost against Revenue principles stipulate that a revenue generated must have an associated cost to it. As & when a revenue is recognized, so is the cost.

How did the American revenue act affect the relationship between England and the colonies?

How did the American Revenue Act affect colonial economies?

Why do you need to understand Opportunity cost?

Opportunity cost is fundamental in understanding the true economist cost (and thus profitability) of actions.

How do you calculate revenue?

Total sales - Cost of goods sold = Revenue

How do you calculate marginal revenue cost by math and graphically and marginal in general?

Profit=Total revenue - Total cost

Business CAT cost of revenue in 2001 is 5266 the cost of revenue in 2002 is 5818 what is the percent increase?


Total revenue and total cost curves?

total cost= total revenue, it is the same thing in different name.

How do you calculate gross margin from cost of goods?

(Revenue-Cost of goods sold)/Revenue Subtract COGS from revenue and then divide by revenue. You'll get a decimal fraction. Convert that number into a percent, and there's your gross margin.