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What is Revenue?

Meaning of Revenue

Revenue is the earnings that an enterprise has from its usual business pursuits, usually from the sale of commodities, and services to consumers. It is also mentioned and referred to as turnover or sales. A few companies get income from royalties, other fees, or interests.

An enterprise believes that it can sell as many quantities of the commodity as it requires by setting a cost price less than or equivalent to the market cost price. In such a case, there is no logic in setting a cost price lower than the market price. In other words, the enterprise should sell some amount of the commodity so that the cost price it sets is exactly equivalent to the market cost price.

Types of Revenues

  • Total Revenue: It is the total receipts a vendor can procure from selling commodities or services to the customers. It can be mentioned as P × Q, which is the cost price of the commodities multiplied by the amount of the commodities sold. So, the total revenue (TR) of an enterprise is defined as the market cost price of the commodity (p) multiplied by the enterprise’s output (q).

Hence,

                                                                   TR = p × q

  • Average Revenue: It is the income initiated per unit of the output sold. It plays a vital role in deciding an enterprise’s profit. Per unit of the profit is the average (total) cost subtracted from the average income. An enterprise usually prefers to manufacture the amount of output that maximizes profit.

                                                           AR TR/q = p × q/q = p

  • Marginal Revenue: It is the income that the company generates when there is a sale of an additional unit. It is used by the management in analyzing the demands of the customers, planning production schedules, and setting product prices. It remains constant till a certain level of output and slows down with an increased output by following the law of diminishing returns.

                                                  MR Change in total revenue/Change in Quantity

Revenue is generated by the sale of goods or services to customers, while income is the amount remaining after all expenses have been subtracted from revenue. Thus, revenue appears in the top line of an income statement, while income appears in the bottom line.