🎯 Target Profit and Target Price Calculations
Formulas: Target profit output = (Fixed costs + Target profit) / Contribution per unit
Target price = (Fixed costs / Forecasted output) + Variable cost per unit + (Target profit / Forecasted output)
Fixed costs = $50,000. Variable cost = $10/unit. Target profit = $20,000.
If price = $30, contribution = $20. Target output = ($50,000 + $20,000) / $20 = 3,500 units.
Alternatively, if output is fixed at 5,000 units: Target price = ($50,000 / 5,000) + $10 + ($20,000 / 5,000) = $10 + $10 + $4 = $24/unit
These calculations extend break-even by asking: how many units (or what price) do we need to achieve a SPECIFIC profit goal?
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