Page 245 - BA2 Integrated Workbook STUDENT 2018

Short-term decision making

2.4 Sales for a target profit

A further calculation which is used as part of CVP analysis is the calculation of the
level of sales required to achieve a certain level of profit.

Fixed costs + X
Sales units for a profit of X = ————–———–——
Contribution per unit

In our example if the company want to achieve a profit of $25,000, the sales units
required would be:
10,000 + 25,000
Sales units for $25,000 profit = ——————— = 875 units
40

As with the breakeven point, this can be calculated in $ of sales revenue:

Fixed costs + X
Sales revenue for a profit of X = —————–——
C/S ratio

10,000 + 25,000
Sales revenue for $25,000 profit = ——————— = $105,000
(40 ÷ 120)

Illustrations and further practice

Now try TYU 8

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