We just saw how to calculate the volume of minimum sales in units and dollars to break-even (have zero profit). What if we are interested to know how many valves need to be sold to earn $30,000? What about $40,000 profit?

The answer can be found using the same equation we saw before (income and profit can be used interchangeably):

Sales = Variable Costs + Fixed Costs + Profits

Sales = Sales Price per Unit x Unit Sales

Variable Costs = Variable Cost per Unit x Unit Sales

If we replace Sales and Variable Costs in the first of the above three equations, we will come to the following result:

Sale Price x Unit Sales = Variable Costs per Unit x Unit Sales + Fixed Costs + Profits

When we further re-arrange the above equation, we will obtain the following:

Using the above formula, we can calculate how many units should be sold to generate $30,000 in profits for Friends Corporation:

The same formula can be used when the target profit is $40,000:

The 20,000 and 25,000 units can be converted in dollars: $100,000 ($5 x 20,000 units) and $125,000 ($5 x 25,000 units).

We can check our answers for the $30,000 and $40,000 profit using the same formula as we applied before:

Profits = Sale Price x Unit Sales - Variable Costs per Unit x Unit Sales - Fixed Costs

For the 20,000 units sold, the profits will be calculated as follows:

Profits = 20,000 x $5 - 20,000 x $3 - $10,000 = $30,000

And for the 25,000 units, the profit can be determined as shown below:

Profits = 25,000 x $5 - 25,000 x $3 - 10,000 = $40,000

In both cases, we arrived at the desired level of profits and therefore, our calculations were correct.

Now when we know that we've got to sell 20,000 units (or generate $100,000 in sales) to earn $30,000 profit and 25,000 units (or $125,000) to make $40,000 of profit, we may assess (1) if it is possible considering market situation; (2) what level of sales is more realistic; (3) what amount of resources you need; and (4) if you need to hire more employees.