Question

?X + + Contribution Break-Even Port Profit Loss 5 X 1$= 5$ Each plastic Treasure at the cost $1 -.-.-.-.-.-.-. Fixed Costs The table will cost you $20 a month Units Break even point =75 Unit Discover thed At the price of 10 $ each Stress-Buster Company Finally, you'll run ads in the college Wages, therefore, will cost you $240 a month newspaper at a monthly cost of $40 (2 hours 5 days x 4 weeks - 40 hours * $6) Income Statement Month Ended September 30, 20X1 [At breakeven level of sales = 75 units] Calculate How many stress pack would you need to sell next month: $750 450 300 Sales (75 X $ 10) Less cost of goods (75 X $6) Gross profit (75 X $4) Less operating expenses Salaries Advertising Table rental 240 A. To earn a profit of 500$? B. To earn 1,000$ profit? 40 20 300 Net income (profit) $0 Describe how did you calculate your answer? Dose knowing breakeven point help you? How?

Answer 1

Target sales units = ( Target Profit + Fixed cost ) / Contribution margin per units

Fixed cost = $300 (Here total operating cost is fixed )

Contribution margin per units= Sales price per units - Variable cost per units

Contribution margin per units= $10 - $6 = $4

* here the cost of goods sold is the variable cost = $6 per units

A. To earn a profit of $500

Target Profit = $500

Target sales units = ( 500 + 300 ) / 4 = 800 / 4 = 200

200 units of stress pack is needed to get profit of $500

Proof

Income statement

Sales ( 200 * $10)	$2000
Less variable cost (cost of goods sold) ( 200 *6)	1200
Gross profit (Contribution margin)	$800
Less Fixed cost (operating cost)	300
Operating income (profit )	$500

B. To earn a profit of $1000

Target Profit = $1000

Target sales units = ( 1000 + 300 ) / 4 = 1300 / 4 = 325

325 units of stress pack is needed to get profit of $1000

Proof

Income statement

Sales ( 325* $10)	$3250
Less variable cost (cost of goods sold) ( 325*6)	1950
Gross profit (Contribution margin)	$1300
Less Fixed cost (operating cost)	300
Operating income (profit )	$1000

* If you don't know your target sales volume, you simply need to add your fixed costs here the operating expenses to your target profit and divide the sum by your contribution margin per unit.

* Here we used CVP (cost volume profit ) analysis . CVP analysis is used to build an understanding of the relationship between costs, business volume, and profitability.

* The contribution margin per unit reflects the amount received from each sold units, after deducting all variable costs per units associated with the units sold. Here the cost of goods sold is the variable cost.

* The target profit like an added additional increment of fixed costs. In other words, the margin must cover the fixed costs and the desired profit.

* The formula is:

Sales units to Achieve a Target profit = (Total Fixed Costs + Target Income) / Contribution Margin per units

* Break even point is also helped to find Sales units to Achieve a Target profit. This is done by tweaking the break-even formula and incorporating the desired profit.

* The formula of Break-even units is:

Break-even units = Total Fixed Costs / Contribution Margin per units

* Break-even occurs when there is no profit or loss. As noted in the question, the break-even point results where sales and total costs are equal.