Target income calculations, Cost Accounting

Assignment Help:

Target Income Calculations

Breaking even is not the bad thing, but surely not a satisfactory outcome for most businesses. In its place, a manager might be more interested in learning the essential sales level to achieve the aimed profit.

The idea/logic for solving this difficulty is to treat "aimed income" like an added increment of the fixed/not varying costs. Or we can say, the margin must cover the fixed costs and the desired profit:

Target Income results when the:

Sales = Total Variable Costs + Total Fixed Costs + Target Income

Suppose that Leyland wants to know the level of the sales to reach the $600,000 income: (Units X $2,000) = (Units X $800) + $1,200,000 + $600,000

By further Solving:

Step a: (Units X $2,000) = (Units X $800) + $1,200,000 + $600,000

Step b: (Units X $1,200) = $1,800,000

Step c: Units = 1,500

Once more, it is possible to "jump to the step b" by splitting the fixed costs and aimed income by the per unit contribution margin:

Units to Achieve the Target Income

=

(Total Fixed Costs + Target Income) / Contribution Margin Per Unit

1,500 Units = $1,800,000 / $1,200

If in case you want to know the dollar level of the sales to achieve particular target net income: Sales to achieve a aimed Income

=

(Total Fixed Costs + Target Income) / Contribution Margin Ratio

$3,000,000 = $1,800,000 / 0.60


Related Discussions:- Target income calculations

Explain the principles of kaizen costing, SD manufactures and sells a small...

SD manufactures and sells a small range of timber based  products. The main differences b/w the products are their size and the type of timber they used. SD prepares annual budgets

Operation and design of cost accounting systems, Operation and Design of Co...

Operation and Design of Cost Accounting Systems A number of features should be taken into account previously to finalizing the design of a cost and management accounting syste

Explain break-even revenue, Q. Explain Break-even revenue? Sales revenu...

Q. Explain Break-even revenue? Sales revenue earned would give no profit and no loss. It can be computed by multiplying break-even volume (above) by products selling price, or

Calculate over applied overhead for last year, The following information re...

The following information relates to Araceli Manufacturing Company: total estimated manufacturing overhead cost at beginning of year $864,000 predetermined overhead rate (based

Standard costing, What are the benefitss and drawbacks of standard costing?...

What are the benefitss and drawbacks of standard costing?

Prepare trial balance for transactions, Encik Farid, a sole trader, started...

Encik Farid, a sole trader, started his business on 1 May 2010 under the name Farid Enterprise. The following are his business transactions for the month of May a. Encik Farid b

Davids net state lottery gains, One month before she died on April 14, 2002...

One month before she died on April 14, 2002, Barbara Gent (Amy's aunt) gave Amy a coin collection. Based on careful records that Barbara kept, the collection had a cost basis of $9

Assignment, Ed Mettway was concerned about his firm''s ability to acquire t...

Ed Mettway was concerned about his firm''s ability to acquire the necessary property, plant, and equipment to take advantage of steadily increasing sales. Touring Enterprises, esta

Calculate the reduction in failure costs per unit, Each unit of a product r...

Each unit of a product requires four components. The average number of components is 4.25 due to component failure. Purchasing higher quality components can reduce the average numb

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd