GPI 265 – Financial statistics – Calculating sales to earn a targeted net profit.

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If you know how to calculate your breakeven sales, you can then go further and determine what sales level you need to achieve to earn a specific net profit target.

For example, your company’s fixed costs are $229,000 and your net gross profit percentage is 8.8%.  Your breakeven sales are as follows:
$229,000/ (1- cost of goods (COGS) OR $229,000/.088 = $2,602,272 net sales to breakeven or to earn no net profit.

If you want to earn $50,000, simply add the desired amount of net profit to your fixed costs to determine what sales level you need to earn $50,000 net profit.  Do this as follows:

($229,000+$50,000)/.088 = $3,170,455.

If you want to earn a net income of $100,000, your fixed costs are $150,000 and your contribution margin (sales less cost of goods sold) is 40%, calculate as follows: ($100,000+$150,000)/.40 = $250,000/.40 = $625,000.

If you want to earn $135,000, your fixed costs are $69,500 and your net gross profit percentage is 22.5%, calculate as follows: ($ 135,000 + $ 69,500)/.225 = ($204,500/.225) = $ 908,889.

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