Accounting MascotAccounting Q&A

How do I calculate target profit?
submitted by Ray Zenz


Target profit is a decision, rather than a calculation. It is a goal for how much money a company wants to make.

You can start by calculating the break even point, and then decide how much profit you want to make in addition to breaking even. Here's the Break-Even formula:

Breakeven Point = Fixed Costs / Contribution Margin per Unit
Contribution Margin = Unit Selling Price - Variable Costs

If you want to make $50,000 profit, then $50,000 is your Target Profit. You can add that to the formula like so:
Sales Goal = Fixed Costs + Target Profit / Contribution Margin per Unit


F.c + Target profit

Unit =

2) Target Profit

Unit C.M


Target profit simply can be calculated by the following formula: Let's say you want to reach the target profit of $1000, but you don't know what sales should be. So, your target profit = volume needed = TFC target prof/ SPU-VCU where; SPU=Selling price per unit and VCU= Variable cost per unit.


Add fixed cost and target profit, then divide it by marginal contribution.


She sells cookies and brownies for $2.00 each, and muffins for $3.00 each. She makes 30% margin on all sales. She wants to buy homemade apple, cherry and lemon pies from local supplier and sell them for $10 each. Question is: If she insists on making a 30% margin on sales, what's the highest price she can pay for these pies and still achieve her target profit margin? That's when you'd use target profit, but that doesn't really answer your question.

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