# Desired Profit in Sales Dollars

Let’s assume a company needs to cover \$2,400 of fixed expenses each week plus earn \$1,200 of profit each week. In essence the company needs to cover the equivalent of \$3,600 of fixed expenses each week.
Presently the company has annual sales of \$100,000 and its variable expenses amount to \$37,500 per year. These two facts result in a contribution margin ratio of 62.5%:

Sales \$100,000

Variable Expenses – 37,500

Contribution Margin \$ 62,500

Contribution Margin Ratio = Contribution Margin ÷ Sales

Contribution Margin Ratio = \$62,500 ÷ \$100,000

Contribution Margin Ratio = 62.5%

The amount of sales necessary to give the owner a profit of \$1,200 per week is determined by this break-even point formula:

Break-even Point in Sales \$ per week = Fixed Expenses per week ÷ Contribution Margin Ratio

Break-even Point in Sales \$ per week = \$3,600 per week ÷ 62.5%

Break-even Point in Sales \$ per week = \$5,760 per week

To verify that this answer is reasonable, we prepared the following schedule:

 Per Week 52 Weeks Sales \$ 5,760 \$ 299,520 Variable Expenses (37.5%) – 2,160 – 112,320 Contribution Margin 3,600 187,200 Fixed Expenses – 2,400 – 124,800 Profit \$ 1,200 \$ 62,400

As you can see, for the owner to have a profit of \$1,200 per week or \$62,400 per year, the company’s annual sales must triple. Presently the annual sales are \$100,000 but the sales need to be \$299,520 per year in order for the annual profit to be \$62,400.