‘Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.’
Wilkins Micawber, fictional character created by Charles Dickens, author
Businesses undertake ‘profit planning’ to calculate forecast profits for different products and services.
Profit planning requires an understanding of variable and fixed costs as well as the concept of ‘contribution’.
By using simple ratios businesses can calculate target profits and their sensitivity to the breakeven sales revenue.
This chapter will cover the following three elements of profit planning: