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Calculator Mastery Problem: Target Income and Margin of Safety Target Income and Margin of Safety At the break-even point, sales and costs are exactly equal. However, the goal of most companies is to make a profit. When a company decides that it wants to earn more than the break-even point of income, it must define the amount it thinks it will realistically make. By modifying the break-even equation, the sales required to earn a target or desired amount of profit may be computed. Complete the following: If a company makes $3 off of each unit it sells and has a target operating income of $1,200, then it must sell units. Similarly, if a company has a target operating income of $50,000 and knows that total expenses for the period will be $50,000, how much revenue must it earn to reach its target operating income? $ Units sold or revenue earned above and beyond the break-even point contributes to the margin of safety for a company. Margin of safety is a crude measure of risk, in that it serves as the padding between profit and the break-even point. Complete the following: Expressed in terms of units, if a company hits its break-even point in units (say, 300 units) and actually sells 500 units, then the margin of safety is units. Similarly, if the break-even point in sales revenue $80,000, and it actually has sales revenue of $250,000, then its margin of safety is APPLY THE CONCEPTS: Target Income (number of units sold) Suppose a business has pricing and cost information as follows: Price and Cost Information Amount $10.00 Selling Price per Unit Variable Cost per Unit Total Fixed Cost $2.00 $400 For the upcoming period, the company wishes to generate operating income of 5720. Given the cost and pricing structure for the company's product, how many units must the company sell to attain its target income? Previous Next Check My Work

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