Units and Sales to Earn Target Profit

Once firms know their breakeven point, they can figure out how many units must be sold to earn a target profit. To do that, simply add the target profit to the total fixed costs in the numerator of the breakeven in units or breakeven in sales dollars equations:

Breakeven units = (Total fixed costs + Target profit)/(Price - Unit variable cost)

Breakeven sales dollars = (Total fixed costs + Target profit)/Contribution margin ratio

Example: Kalman Company makes vases. Last year, Kalman sold 4,600 vases at a price of $12.00 and had the following information on costs:

Unit direct materials	$1.66
Unit direct labor	0.52
Unit variable overhead	0.18
Unit selling expense	0.61
Total fixed overhead	$10,534
Total selling and administrative expense	$18,814

Kalman's operating income last year was - Select your answer -$0$8,700$12,190$22,724$31,004Item 1 .

Suppose Kalman wants to earn operating income of $15,802. How many units (rounded to the nearest unit) must be sold to achieve that?

Units = (Total fixed cost + Target income)/(Price - Unit variable cost) = ($29,348 + $15,802)/($12.00 - $2.97) = 5,000

What level of sales revenue would result in operating income of $15,802? - Select your answer -$5,000$29,348$38,948$60,000Item 2 .

We can show that selling 5,000 units results in operating income of $15,802 by constructing an income statement.

Sales ($12.00 5,000)	$60,000
Total variable cost ($2.97 5,000)	14,850
Contribution margin	$45,150
Total fixed cost	29,348
Operating income	$15,802

If Kalman wanted to earn operating income of $19,032 rather than $15,802, the necessary number of units sold would be - Select your answer -higherlowerthe sameItem 3 .

If Kalman's contribution margin ratio were 40%, the sales dollars to earn $15,802 in operating income would be - Select your answer -higherlowerthe sameItem 4 .