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.

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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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