The effect of revenue variations on the earnings of companies with different cost structures

Abstract

The aim of this paper is to describe when and how certain variation on revenues may give rise to different impact on company earnings, in accordance to its cost structure. It was adopted the deductive method by asserting when, with only revenue and earning variables, one organization has a cost structure different from other one. The Mann Whitney nonparametric test confirmed the initial premise that manufacturing industries have higher rates of variable costs than service industries. After, through the Simple Regression method, it was found that in companies with low rates of variable costs - service industries - the impact of revenue variation on earnings is higher than the other group - manufacturing industries. In addiction, the conclusions showed that the organizations should be aware by evaluating the operational risk level at which they have been operating.