There are likely few companies that just want to break even; most companies will set a monetary profit goal. Determining the target profit is similar to breakeven analysis, except that the company would like to earn a profit. You would set a target profit to reach and calculate the number of units needed to reach that target. You would also calculate the corresponding sales in dollars needed to reach the target.
You can use the same formula that was used to calculate the breakeven point. In the breakeven formula, the target profit is zero.
Go back to the breakeven point example, where the following information was available:
| Sales price per unit | $100 |
| Minus: variable cost per unit | $60 |
| Equals: contribution margin per unit | $40 |
|
-
|
-
|
| Fixed costs | $1,500,000 |
In addition, add a target profit of $500,000. The calculations would look like this:
The company must sell 50,000 units to reach its target profit of $500,000.
Check the numbers:
| Sales (50,000 units x $100 per unit) | $5,000,000 |
| Variable costs (50,000 x $60 per unit) | $3,000,000 |
| Contribution margin per unit (50,000 units x $40 per unit) | $2,000,000 |
| Less: fixed costs | $1,500,000 |
| Net income | $500,000 |
The target profit was $500,000.