Your revenue increased 20% last year and your total expenses increased 25%. did your profit increase or decrease?

A. increased

B. decreased

C. stayed the same

D. can’t tell from the data

The correct answer is option (B) Decreased

Explanation: The equation for determining profit is given as follows;

Profit = Revenue - Expenses

From the details provided, we shall assume that the base figures for revenue and expense is 100, since we are dealing changes expressed as a percentage. If the revenue increased by 20 percent then the revenue shall become 120 in total. Note that whatever the actual revenue is, the increment shall be 120 percent of the original figure. Also expenses increased by 25 percent which means expenses rose to 125 in total. With this bit of information the profit calculation shall now become;

Profit = Revenue - Expenses

Profit = 120 - 125

Profit = -25

From the information given, the profit decreased.

However, it is very important to note that this does not translate into a loss, as the volume/amount of revenue may possibly outweigh the volume/amount of expenses by a very wide margin. This simply implies that you would still make a profit but the volume of profit would have reduced.

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