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revenue-driven expenses

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Definition of revenue-driven expenses

Revenue-driven Expenses Image 1

revenue-driven expenses

Operating expenses that vary in proportion to
changes in total sales revenue (total dollars of sales). Examples are sales
commissions based on sales revenue, credit card discount expenses, and
rents and franchise fees based on sales revenue. These expenses are one
of the key variables in a profit model. Segregating these expenses from
other types of expenses that behave differently is essential for management
decision-making analysis. (These expenses are not disclosed separately
in externally reported income statements.)



Related Terms:

Accrued expenses payable

expenses that have to be recorded in order for the financial statements to be accurate. Accrued expenses usually do not involve the receipt of an invoice from the company providing the goods or services.


accrued expenses payable

The account that records the short-term, noninterest-
bearing liabilities of a business that accumulate over time, such
as vacation pay owed to employees. This liability is different than
accounts payable, which is the liability account for bills that have been
received by a business from purchases on credit.


Annual fund operating expenses

For investment companies, the management fee and "other expenses,"
including the expenses for maintaining shareholder records, providing shareholders with financial statements,
and providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are included.


Expenses

The costs incurred in buying, making or producing goods and services.


Expenses

Costs involved in running the company.



Fictitious Revenue

revenue recognized on a nonexistent sale or service transaction.


Fixed Expenses

Cost of doing business which does not change with the volume of business. Examples might be rent for business premises, insurance payments, heat and light.


Revenue-driven Expenses Image 2

fixed expenses (costs)

expenses or costs that remain the same in amount,
or fixed, over the short run and do not vary with changes in sales volume
or sales revenue or other measures of business activity. Over the
longer run, however, these costs increase or decrease as the business
grows or declines. Fixed operating costs provide capacity to carry on
operations and make sales. Fixed manufacturing overhead costs provide
production capacity. Fixed expenses are a key pivot point for the analysis
of profit behavior, especially for determining the breakeven point and for
analyzing strategies to improve profit performance.


GENERAL-AND-ADMINISTRATIVE EXPENSES

What was spent to run the non-sales and non-manufacturing part of a company, such as office salaries and interest paid on loans.


incremental revenue

the revenue resulting from an additional contemplated sale


Industrial revenue bond (IRB)

Bond issued by local government agencies on behalf of corporations.


Internal Revenue Code

Refers to all federal tax laws as a group.


Internal Revenue Service

A federal agency empowered by Congress to interpret and enforce tax-related laws.


NET SALES (revenue)

The amount sold after customers’ returns, sales discounts, and other allowances are taken away from
gross sales. (Companies usually just show the net sales amount on their income statements, omitting returns, allowances, and the like.)


OPERATING EXPENSES

The total amount that was spent to run a company this year.


Operating Expenses

The amount of money the company must spend on overhead, distribution, taxes, underwriting the risk and servicing the policy. It is a factor in calculating premium rates.


Premature Revenue

revenue recognized for a confirmed sale or service transaction in a period
prior to that called for by generally accepted accounting principles.


Prepaid expenses

expenses that have been paid for but have not yet been used up; examples are prepaid insurance and prepaid rent.



Realizable Revenue A revenue transaction where assets received in exchange for goods and

services are readily convertible into known amounts of cash or claims to cash.


Realized Revenue

A revenue transaction where goods and services are exchanged for cash or
claims to cash.


Revenue

Income earned from the sale of goods and services.


Revenue

Amounts earned by the company from the sale of merchandise or services; often used interchangeably with the term sales.


Revenue

An inflow of cash, accounts receivable, or barter from a customer in exchange
for the provision of a service or product to that customer by a company.


Revenue bond

A bond issued by a municipality to finance either a project or an enterprise where the issuer
pledges to the bondholders the revenues generated by the operating projects financed, for instance, hospital
revenue bonds and sewer revenue bonds.


revenue center

a responsibility center for which a manager is accountable only for the generation of revenues and has no control over setting selling prices, or budgeting or incurring costs


Revenue fund

A fund accounting for all revenues from an enterprise financed by a municipal revenue bond.


Revenue Recognition

The act of recording revenue in the financial statements. revenue should
be recognized when it is earned and realized or realizable.


Sales Revenue Revenue recognized from the sales of products as opposed to the provision of

services.



SELLING EXPENSES

What was spent to run the sales part of a company, such as sales salaries, travel, meals, and lodging for salespeople, and advertising.


Service Revenue

revenue recognized from the provision of services as opposed to the sale of
products.


Total revenue

Total sales and other revenue for the period shown. Known as "turnover" in the UK.


Unearned revenue

Money that has been paid by customers for work yet to be done or goods yet to be provided.


Unearned revenue

A payment from a customer that cannot yet be recognized as earned
revenue, because the offsetting service or product for which the money was paid has
not yet been delivered.


unit-driven expenses

expenses that vary in close proportion to changes
in total sales volume (total quantities of sales). Examples of these types of
expenses are delivery costs, packaging costs, and other costs that depend
mainly on the number of products sold or the number of customers
served. These expenses are one of the key factors in a profit model for
decision-making analysis. Segregating these expenses from other types
of expenses that behave differently is essential for management decisionmaking
analysis. The cost-of-goods-sold expense depends on sales volume
and is a unit-driven expense. But product cost (i.e., the cost of
goods sold) is such a dominant expense that it is treated separately from
other unit-driven operating expenses.


VARIABLE EXPENSES

Those that vary with the amount of goods you produce or sell. These may include utility bills, labor, etc.


variable expenses

expenses that change with changes in either sales volume
or sales revenue, in contrast to fixed expenses that remain the same
over the short run and do not fluctuate in response to changes in sales
volume or sales revenue. See also revenue-driven expenses and unitdriven
expenses.



 

 

 

 

 

 

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