Example of Desired Profit

Example of Desired Profit

In the below example it is explained that how with the help of break even formula the desired profit level can be calculated. To calculate the desired profit volume simply the desired profit is added to the fixed cost and divided by the unit contribution.

Formula for desired profit level

= (Fixed Cost + Desired profit)/unit contribution

Example of Desired Profit

Sale price per unit	200
Direct Material per unit	60
Skilled Labour (Direct)	30
Factory Overheads	30
Factory Fixed Cost	40,000
Desired profit	60,000

Calculate the sale volume to achieve a profit of 50,000?

Solution

Step 1 calculate unit contribution

Sale price		200
Variable cost	(60+30+30)	120
Unit Contribution	(200-120)	80

Step 2 calculate the desired profit volume

Fixed Cost+ Desired Profit	60,000+40,000	100,000
Unit contribution		80
Desired profit volume	100,000/80	1250

Check

	Unit	Rate
Sales	1250	200	250,000
Variable Cost	1250	120	150,000
Contribution			100,000
Fixed cost			(40,000)
Desired Profit			60,000