Desired Profitability Formula

Desired Profitability Formula

Desired Level of profitability may be calculated by the following formula.

Desired Profitability = [Fixed Cost + Desired Profit]/unit Contribution

Example

Fixed Cost = 50,000

Profit = 30,000

Sales price = 30

Variable Cost = 18

Solution

Unit Contribution = 30-18

=12

= [50,000+30,000]/12

=80000/12

=6,667 (units)