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Revenue and Profit

What is Revenue?

Revenue (also known as the sale) is the amount of money that a business generates from its operational activities. It is calculated by multiplying the price of a particular good sold with its quantity. For example, last year, XYZ Company manufactured 200 units of motorbikes and sold each at $700. The total revenue of the company will be $140,000.

What is Profit?

In general, profit is the money left after deducting all costs that occurred for the manufacturing of finished goods or to render services. In other words, it is the difference between particular product’s price and cost.

Difference between Revenue and Profit

Types

Revenue comes with two types: operative revenue is generated from its normal operations whereas non-operative revenue is generated through other activities of the business.

There are three types of profit: gross profit, operating profit, and net profit. The gross profit is the total revenue minus cost of goods sold, the operating profit is the gross profit minus all operating expenses and finally, net profit is the money left behind after excluding all expenses including cost of goods sold, operating expenses, interest cost on debt and tax.

Dependence

The profit is dependent on the revenue, increase in the revenue may cause an increase in profit.

Example

ABC Company is specialized in manufacturing of automobile parts. during the year, it manufactures 100 units of good X with $10 price per unit.  If the cost of goods sold is $650, administrative expenses are $90 and corporate tax rate is 25% then calculate the gross profit, the operating profit, the net profit and the revenue.

Total Revenue = 100 units * $10 price per unit = $1000

Gross Profit = $1000 – $650 = $350

Operating Profit = $1000 – $650 – $90 = $260

Corporate Tax @ 25% = $65

Net Profit = $260 – $65 = $195

Conclusion

Revenue is calculated by multiplying no. of goods sold with their unit price whereas profit is the difference between product price and its cost.

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