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Breakeven Analysis by Jon Wentworth, Michael E. Cafferky

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CHAPTER 4

Target Profit Method

While knowing the breakeven point is useful information, the objective of every business is to go beyond breakeven and achieve a profit. We can incorporate the target profit of the business into the breakeven formula in one of two ways.

Management may set a fixed amount of desired profit for the period (month, quarter, or year). That fixed desired profit is treated as an additional fixed cost in the formula.

image

Let’s continue using the data from the example in the preceding chapter and add a desired profit of $52,000 per year.

Annual Fixed Costs = $520,000

Selling Price per Unit = $25

Variable Cost per Unit = $17

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