Using Breakeven Analysis for Profit Levels
Kyle Ashcraft, CPA · 2019 CPA Exam Scores · 95 FAR · 98 BEC · 91 REG · 90 AUD
Breakeven analysis doesn't stop at telling you how many units you need to sell to break even — the same logic tells you how many you need to sell to hit any target profit.
Why does breakeven analysis extend to profit targets?
Once you've sold enough units to cover your fixed costs, you've broken even. Every unit sold after that point doesn't need to cover fixed costs anymore — its entire contribution margin flows straight to profit.
Worked example: hitting an $80,000 profit target
Say fixed costs are $10,000 and the contribution margin per unit is $4. The breakeven point is:
To find how many additional units are needed to reach an $80,000 profit, divide the target profit by the contribution margin per unit:
Add the breakeven units and the additional units together for the total:
Is there a one-step shortcut?
Yes — add the target profit directly to fixed costs before dividing, and you get the same answer in one step:
Target-profit analysis is breakeven analysis with the profit folded in. Whether you calculate breakeven and additional units separately or combine fixed costs and target profit into one number, you land on the same total — 22,500 units either way.
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Kyle Ashcraft, CPA scored 90 or above on every section of the CPA exam in 2019, including a 98 on BEC. He is the founder and sole instructor of Maxwell CPA Review, a complete CPA review course covering all six sections, where he creates every lecture, textbook and study outline himself.