Example of Desired Profit

Example of Desired Profit

This example explains how the desired profit level can be achieved. It is proven that break even level the contribution is equal to the fixed cost plus variable cost. Therefore to achieve a desired level of profit we must add the profit to the break even level and calculated new level of sales volume.

Sale price per unit	120
Direct Material	40
Worked Labour	15
Factory Overheads	15
Factory Fixed Cost	70,000
Desired profit	50,000

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

Solution

Sale price		120
Variable cost	(40+15+15)	70
Unit Contribution	(120-70)	50
Sales volume	70,000+50,000/30	2,400 unit

Check

	unit	Rate
Sales	2400	120	288,000
Variable Cost	2400	70	168,000
Contribution			120,000
Fixed cost			(70,000)
Profit			50,000