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Homework answers / question archive / What formula is used to solve for the break-even point in units? How can the break-even formula be altered to calculate the number of units that must be sold to achieve a desired level of income (target income)? Show the formula and explain

What formula is used to solve for the break-even point in units? How can the break-even formula be altered to calculate the number of units that must be sold to achieve a desired level of income (target income)? Show the formula and explain

Accounting

  1. What formula is used to solve for the break-even point in units?
  2. How can the break-even formula be altered to calculate the number of units that must be sold to achieve a desired level of income (target income)? Show the formula and explain.

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1) Formula used to solve for the Break-even Point in Units:

Break-even Point in Units = Fixed Cost / Contribution Margin per Unit

Here,

Contribution Margin per Unit = Selling Price per Unit - Variable Cost per Unit

 

2) Formula used to solve for Number of Units that must be sold to achieve a desired level of income (target income):

Number of Units that must be sold to achieve a desired level of income (target income) = (Fixed Cost + Target Profit) / Contribution Margin per Unit

 

So, if we want to know the units to be sold to achieve desired level of target income then just add fixed cost with desired level of target income and divide it by contribution per unit. This will give the number of units to be sold to achieve a desired level of target income.