Definition, Explanation and Formula:
Every business make plan to earn a specific amount of profit for a specific fiscal year, this profit is known as target profit. Beyond the break even point, the fixed costs are covered and sale of further units make a contribution to profit. Sometimes business need to find out number of units to be sold to earn a required amount of profit, in this case the break even formula can be slightly amended to serve the purpose.
Formula for target profit is given below:
Solved Example 1:
A business aims at earning a net profit of $45000. It sells, its goods for $12 each and incurs variable costs @ $4 each. Its total fixed costs amounting to $75000.
Calculate the number of units to be produced and sold to earn the required profit?
Solved Example 2 – (Calculation of Company’s Break-even Point in Revenue):
City tours is a car and van hire company which offers three categories of vehicle hire, estimated details for next year are as follows:
Calculate the company’s break even point in revenue for next year.