Using Breakeven Analysis for Profit Levels

We can use the same breakeven methods to see how many units we need to sell to reach a certain profit level, instead of only looking at how many units to break even.

For example, let’s say that we want to reach a profit of $80,000. Our fixed costs are $10,000, and our contribution margin per unit is $4 from earlier. We know that we need to sell 2,500 units to break even, but how many do we need to sell to reach an $80,000 profit?

Think of it this way, once we sell 2,500 units, then every unit we sell is going to contribute $4 to our profit, and that’s because we’ve already paid off our fixed costs.

How do we figure out how many units to sell after the breakeven point to reach a profit of $80,000? All we do is take the profit of $80,000 and divide it by the contribution margin per unit of $4. That gives us 20,000 units. First, we need to sell 2,500 units to break even and then an additional 20,000 units to reach a profit of $80,000. That means we need to sell a total of 22,500 units.

First, we figure out the number of units we need to sell to break even. Then we figure out the number of units to reach the profit, and then we add them together.