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
2) Target Profit
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.
Add your Answer.