Reviewed by Julian Vance, CPA, Strategic Pricing Consultant
This Target Unit Price Calculator helps determine the minimum selling price (P) required to achieve specific fixed cost and profit targets (F) given expected sales volume (Q) and variable costs (V).
The **Target Unit Price Calculator** is essential for cost-plus pricing strategies. It uses the fundamental CVP model to calculate the necessary price per unit (P) that must be charged to cover all variable costs, fixed costs, and the desired level of net income (Target Profit, which is included in F).
Target Unit Price Calculator
Detailed Calculation Steps
Target Unit Price Formulas
The target unit price (P) calculation ensures that the contribution margin (P – V) is sufficient to cover the total required funds (F) over the expected sales volume (Q).
Formula to Solve for Selling Price (P)
P = V + \frac{F}{Q}
Core CVP Equation (Used for all calculations)
F = Q \times (P – V)
Formula to Solve for Sales Volume (Q)
Q = \frac{F}{P – V}
Formula to Solve for Variable Cost (V)
V = P – \frac{F}{Q}
Formula Source: Investopedia – CVP Analysis
Variables Explained
Understanding these variables is key to setting an effective target unit price:
- **F (Total Required Funds):** This variable represents the sum of Fixed Costs plus your desired Net Profit (Target Profit). It is the total contribution goal.
- **P (Selling Price Per Unit):** The price point you are solving for—the minimum necessary price to achieve F.
- **V (Variable Cost Per Unit):** Costs directly tied to one unit of production (e.g., raw materials, direct labor).
- **Q (Sales Volume Target):** The volume of units you expect or plan to sell during the period.
Related Calculators
Explore related tools for pricing and profitability analysis:
- Minimum Markup Calculator
- Break-Even Pricing Calculator
- Unit Contribution Margin Finder
- Volume Adjustment Planner Calculator
What is the Target Unit Price Calculator?
The Target Unit Price Calculator is a powerful reverse-engineering tool for financial planning. Instead of setting a price and hoping for a profit, this calculator determines the *exact minimum price* (P) that must be charged per unit to ensure that, when combined with your sales target (Q) and variable costs (V), the total contribution margin generated is exactly equal to the total funds required (F).
This is particularly useful when launching a new product, responding to cost increases, or trying to achieve a specific quarterly profit goal. It isolates the price variable, forcing management to align their pricing strategy with their financial reality and profit expectations.
How to Calculate Target Unit Price (Example)
Let’s find the required Selling Price (P) when Total Required Funds (F) = $120,000, Variable Cost (V) = $30, and Sales Volume Target (Q) = 4,000 units:
- **Input Variables:** F=$120,000, V=$30, Q=4,000. P is missing.
- **Calculate Required Unit Contribution:** $\text{CM}_{\text{req}} = F / Q = \$120,000 / 4,000 = \$30$.
- **Solve for Price (P):** $P = V + \text{CM}_{\text{req}} = \$30 + \$30 = \$60$.
- **Result:** The **Target Unit Price (P) is $60**. Charging anything less will result in a failure to meet the $120,000 funding requirement (Fixed Costs + Target Profit).
Frequently Asked Questions (FAQ)
Is the Target Unit Price the same as the Market Price?
No. The calculated **Target Unit Price** is the minimum financial necessity based on your costs and goals. The actual **Market Price** is set by competitive factors, demand, and perceived value. Your final price must be $\ge$ the Target Price for financial viability.
What happens if the Sales Volume Target (Q) is set to zero?
The formula $P = V + (F / Q)$ involves division by Q. If Q is zero, the calculation is undefined (division by zero), meaning it’s impossible to calculate a price if you expect zero sales but require funding (F > 0).
How can I lower the Target Unit Price?
To lower the calculated P, you must decrease the required unit contribution $(F/Q)$. This can be achieved by either **decreasing Total Required Funds (F)** (i.e., lowering fixed costs or lowering your profit target) or **increasing the Sales Volume Target (Q)**.
Why is it important to include the Target Profit in F?
Including Target Profit in F ensures the resulting price (P) doesn’t just get you to the break-even point, but actively builds in the desired profit margin, making the pricing strategy goal-oriented.