Target Profit Sales Calculator

Target Profit Sales

It is a method to determine the number of units to be sold to achieve a target profit. This method helps in the planning of production activity by determining the number of units to be sold. By deciding a target profit, the company secures itself from the losses or we can also say that the company ensures to earn something above breakeven. This can also be called Target Profit Volume Calculator as it shows the number of units to achieve the target level of profit. The target profit sales calculator calculates such numbers of units required to achieve target profit.

Formula

In order to calculate target profit sales, consider the following formula:

Target Profit Sales = (Target Profit + Fixed Cost) / Contribution per Unit

As said above, target profit sales is the level of sales where the number of units sold by the company will earn a targetted profit.

Let us put this in equation form.

Total Sales = Target Profit + Total Fixed Cost + Total Variable Cost

Since the selling price and variable cost are fixed per unit, the above equation can be written as:

Number of Units Sold*Selling Price per Unit = Target Profit + Total Fixed Cost + Number of Units Sold*Variable Cost per Unit

Assume the number of units to be sold be ‘x’. Therefore,

Selling Price per Unit*(x) = Target Profit + Total Fixed Cost + Variable Cost per unit*(x)

On solving it,

Selling Price per Unit*(x) – Variable Cost per unit*(x) = Target Profit + Total Fixed Cost

(Selling Price per Unit – Variable Cost per unit)*(x) = Target Profit + Total Fixed Cost

x = (Target Profit + Total Fixed Cost) / (Selling Price per Unit – Variable Cost per unit)

Hence, Number of sales units to earn a target profit = (Target Profit + Total Fixed Cost) / Contribution per Unit

Target Profit Sales Calculator

Calculator

How to Calculate using Calculator?

Enter the following inputs into the target profit sales calculator.

Selling Price per Unit

Enter the selling price per unit of the product.

Variable Cost per Unit

Enter the variable cost per unit of the product.

Total Fixed Cost

Enter the amount of total fixed cost.

Target Profit

Enter the amount of profit that company wants to achieve.

Example

Assume a company producing rackets has decided to earn a profit of $45,000. The company sells a racket for $81 while the variable cost for producing a unit is $64.5. The total fixed cost of the company is $21,000. Now, the number of rackets to sell in order to earn a profit of $45,000 is:

Target Profit Sales = (45,000 + 21,000) / (81 – 64.5) = 4,000 units

Explanation

In the example above, the company has to produce 4,000 units in order to earn the target profit of $45,000. The target profit sales method determines the number of units that will derive a specified amount of profit to the company.

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Sanjay Borad

Sanjay Bulaki Borad

Sanjay Borad is the founder & CEO of eFinanceManagement. He is passionate about keeping and making things simple and easy. Running this blog since 2009 and trying to explain "Financial Management Concepts in Layman's Terms".

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