Chapter 5, Problem 4BE

(A)

To determine

Target Profit: It refers to the desired amount of profit that a company expects to achieve by the end of an accounting period after it reaches its break-even point. Thus, the company needs to compute the required sales to earn the target profit. The formula to calculate the required sales to earn the target profit is as follows:

$\text{Sales}\left(\text{units}\right)=\frac{\text{Fixed}\text{Costs+Target}\text{Profit}}{\text{Unit}\text{Contribution}\text{Margin}}$

the break-even point in sales units.

(B)

To determine

the break-even point if the company desires a target profit of $500,000.