Target Profits

Share Accounting Article below:

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:

target-profit-formula

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.

Required:

Calculate the number of units to be produced and sold to earn the required profit?

Solution:

target-profit-example-1

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:

target-profit-example-2-data

Required:

Calculate the company’s break even point in revenue for next year.

Solution:

target-profit-example-2-solution