Target profit

Target profit analysis extends break-even analysis by asking how many units must be sold to cover all costs and earn a specific profit goal.

ByHoang TruongUpdated June 30, 2026

FrameworkCost-volume-profit (CVP) analysis

See it move

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A stacked bar shows the two obligations that contribution margin must cover: fixed costs of €60,000 and a target profit of €30,000, totalling required contribution of €90,000. Dividing that total by a contribution margin of €15 per unit gives the target-profit volume of 6,000 units. Including the profit goal in the numerator is what distinguishes a target-profit calculation from a simple break-even calculation.

Where it fits

SubjectCost AccountingCoreTopicCost-Volume-Profit AnalysisCore

The formula

LaTeX

Q^* = \frac{FC + \pi}{CM}

Variables

$Q *$: Units required to achieve the target profit (units)
$F C$: Total fixed costs for the period (€)
$π$: Target profit for the period (€)
$C M$: Contribution margin per unit (selling price minus variable cost per unit) (€ per unit)

Extends break-even analysis by adding the profit target to the numerator; break-even is the special case where π = 0.

LaTeX

REV^* = \frac{FC + \pi}{CMR}

Variables

$R E V *$: Revenue required to achieve the target profit (€)
$C M R$: Contribution margin ratio (contribution margin ÷ selling price) (decimal)

Revenue-based version; used when contribution margin ratio is known rather than the per-unit margin.

Check yourself

PracticeCORE

A software firm sells licences at €20 each with variable costs of €4 per licence. Fixed costs total €48,000 and the profit target is €20,000. How many licences must the firm sell to reach this target?

Select an answer to check your understanding.