How to Calculate Business Expenses for Target Profit in a Fun and Easy Way!
What is an Expense and how can you calculate it for target profit?
Expense - The unit sales for target profit is 4200 units
Understanding Business Expenses and Calculating for Target Profit
An expense is the cost of processes incurred by a business in order to generate revenue. It is simply described as the amount of money required to obtain something. "It costs lots of cash," as the adage goes. Supplier payments, employee salaries, factory lease agreements, and equipment depreciation are all common expenses.
Businesses can deduct tax-deductible expenses on one's income tax returns to reduce their taxable income and thus their tax payable. To calculate expenses for a target profit, you can use the following formula:
(Total fixed expenses + Target profit) / Contribution margin per unit
Calculating expenses for target profit involves adding up the total fixed expenses of the business and the desired profit level. This total is then divided by the contribution margin per unit, which is the selling price per unit minus the variable expenses per unit. Let's break it down further:
1. Total Fixed Expenses: In this case, the total fixed expenses are $381,300.
2. Target Profit: The target profit is $9,300.
3. Contribution Margin per Unit: The contribution margin per unit is calculated as (Selling Price per unit - Variable Expenses per unit), which in this case is ($150.00 - $57.00) = $93.00.
Now, we can plug these values into the formula to calculate the unit sales needed for target profit:
(381,300 + 9,300) / 93 = 4200 units
Therefore, the unit sales needed to achieve the target profit of $9,300 with total fixed expenses of $381,300 and a contribution margin per unit of $93.00 is 4200 units.
Understanding and calculating business expenses for target profit is essential for financial planning and goal setting. By knowing how to determine the necessary unit sales, businesses can make informed decisions to reach their desired profit levels.