A certified financial analyst specializing in target profit planning and advanced cost-volume-profit modeling, ensuring the integrity of profit goal calculations.
This **Target Profit Calculator** helps you determine the necessary Fixed Costs (F), Price (P), Variable Costs (V), or Sales Volume (Q) required to achieve a specific operating income goal. The tool simplifies advanced CVP analysis. Enter any three variables to instantly solve for the fourth (assuming a break-even goal).
Target Profit Calculator
Target Profit Formula
The Target Profit analysis is an extension of the basic break-even model, where the required profit amount (Target Income, or TI) is added to the Fixed Costs (F) to determine the necessary sales to achieve the goal.
Key Formula: Target Sales Volume (Q)
Related Target Formulas
Variables Explained in Target Profit Analysis
The CVP variables remain central, but the goal shifts from zero profit to a positive target amount (which is assumed in the input calculation):
- F: Fixed Costs (Total) – Costs that must be covered before the target profit can be earned.
- P: Selling Price per Unit – Determines the unit contribution toward covering costs and achieving the profit target.
- V: Variable Cost per Unit – Affects the contribution margin; must be minimized to reach profit goals faster.
- Q: Sales Volume (Units) – The most common unknown, representing the minimum units required to hit the profit goal.
Related Profit Planning Calculators
Use these tools to finalize your sales planning and strategic targets:
- Break-Even Analysis Calculator
- Required Rate of Return Calculator
- Degree of Operating Leverage Calculator
- Target Profit Ratio Calculator
What is Target Profit?
Target Profit refers to the desired level of operating income that a company aims to achieve over a specific period. Unlike the break-even point, which is the necessary minimum to avoid loss, the target profit is a strategic goal used for business planning, budgeting, and performance evaluation.
By using the Target Profit formula, managers can strategically adjust their sales price (P), control their variable costs (V), or plan their advertising budget (F) to ensure their sales team is working toward a profitable volume (Q) rather than just a break-even one. It converts a financial goal (profit) into actionable operational metrics (sales volume).
How to Calculate Target Sales Volume (Example)
Let’s determine the sales volume required to achieve a Target Profit of $50,000:
- Identify CVP Inputs and Target:
- Fixed Costs (F): $100,000
- Selling Price (P): $45.00
- Variable Cost (V): $25.00
- Target Income (TI): $50,000
- Calculate Contribution Margin (CM):
CM = P – V = $45.00 – $25.00 = $20.00 per unit.
- Calculate Total Contribution Required:
Total CM Required = F + TI = $100,000 + $50,000 = $150,000.
- Calculate Target Sales Volume (Q):
Q = Total CM Required / CM = $150,000 / $20.00/unit = 7,500 units.
Frequently Asked Questions (FAQ)
How does this calculation differ from the Break-Even Point?
The Break-Even Point is the sales volume (Q) when Target Income is zero. The Target Profit calculation simply substitutes the zero with the desired profit figure.
Can I use this to calculate the required Sales Revenue?
Yes. If you solve for Q (units) and then multiply Q by the Price (P), you get the required Sales Revenue in dollars to achieve the target profit.
What is the most sensitive variable in achieving the Target Profit?
The Contribution Margin (P – V) is the most sensitive factor. A small change in price (P) or variable cost (V) can drastically change the number of units (Q) required to reach the profit goal.
If I enter all four variables, what does the calculator show?
If all four are entered, the calculator performs a consistency check and reveals the actual Operating Income (Target Profit achieved) based on the inputs.