At the break-even point, sales and costs are exactly equal. However, the goal of most companies is to make a profit. When a company decides that it wants to earn more than the break-even point of income, it must define the amount it thinks it will realistically make. By modifying the break-even equation, the sales required to earn a target or desired amount of profit may be computed. Complete the following: If a company makes $5 off of each unit it sells and has a target operating income of $5,000, then it must sell be $75,000, how much revenue must it earn to reach its target operating income? s units. Similarly, if a company has a target operating income of $75,000 and knows that total expenses for the period will Units sold or revenue earned above and beyond the break-even point contributes to the margin of safety for a company. Margin of safety is a crude measure of risk, in that it serves as the padding between profit and the break-even point. Complete the following: Expressed in terms of units, if a company hits its break-even point in units (say, 100 units) and actually sells 400 units, then the margin of safety is units. Similarly, if break-even point in sales revenue is $200,000, and it actually has sales revenue of $400,000, then its margin of safety is $
At the break-even point, sales and costs are exactly equal. However, the goal of most companies is to make a profit. When a company decides that it wants to earn more than the break-even point of income, it must define the amount it thinks it will realistically make. By modifying the break-even equation, the sales required to earn a target or desired amount of profit may be computed. Complete the following: If a company makes $5 off of each unit it sells and has a target operating income of $5,000, then it must sell be $75,000, how much revenue must it earn to reach its target operating income? s units. Similarly, if a company has a target operating income of $75,000 and knows that total expenses for the period will Units sold or revenue earned above and beyond the break-even point contributes to the margin of safety for a company. Margin of safety is a crude measure of risk, in that it serves as the padding between profit and the break-even point. Complete the following: Expressed in terms of units, if a company hits its break-even point in units (say, 100 units) and actually sells 400 units, then the margin of safety is units. Similarly, if break-even point in sales revenue is $200,000, and it actually has sales revenue of $400,000, then its margin of safety is $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Mastery Problem: Target Income and Margin of Safety
Target Income and Margin of Safety
At the break-even point, sales and costs are exactly equal. However, the goal of most companies is to make a profit. When a company decides that it wants to earn more than the break-even point of income, it must define the amount it thinks it
will realistically make. By modifying the break-even equation, the sales required to earn a target or desired amount of profit may be computed.
Complete the following:
If a company makes $5 off of each unit it sells and has a target operating income of $5,000, then it must sell
units. Similarly, if a company has a target operating income of $75,000 and knows that total expenses for the period will
be $75,000, how much revenue must it earn to reach its target operating income? $
Units sold or revenue earned above and beyond the break-even point contributes to the margin of safety for a company. Margin of safety is a crude measure of risk, in that it serves as the padding between profit and the break-even point.
Complete the following:
Expressed in terms of units, if a company hits its break-even point in units (say, 100 units) and actually sells 400 units, then the margin of safety is
units. Similarly, if the break-even point in sales revenue is $200,000, and it actually
has sales revenue of $400,000, then its margin of safety is $
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