Let’s say that the owner of Oil Change Co. needs to earn a profit of $1,200 per week rather than merely breaking even. You can consider the owner’s required profit of $1,200 per week as another fixed expense. In other words the fixed expenses will now be $3,600 per week (the $2,400 listed earlier plus the required $1,200 for the owner). The new point needed to earn $1,200 per week is shown by the following break-even formula:
Break-even Point in Cars per Week = Fixed Expenses per week ÷ Contribution Margin per car
Break-even Point in Cars per Week = $3,600 per week ÷ $15 per Car
Break-even Point in Cars per Week = 240 Cars per Week
Always check your calculations:
|
Oil Change Co. |
|
|
Sales (240 cars serviced at $24 per car) |
$ 5,760 |
|
Variable Expenses (240 cars at $9 per car) |
– 2,160 |
|
Contribution Margin |
3,600 |
|
Fixed Expenses |
– 2,400 |
|
Net Income |
$ 1,200 |
The above schedule confirms that servicing 240 cars during a week will result in the required $1,200 profit for the week.
Be the first to comment on "Desired Profit in Units"