Earlier we calculated the sales required for designed income using the equation technique. We will now calculate such sales using the contribution margin technique.

Let's go back to our contribution margin equation:

Contribution Margin = Sales - Variable Costs

We also know the following:

Sales - Variable Costs = Fixed Costs + Profits

If we replace Sales - Variable Costs in the first equation with Fixed Costs + Profits from the second equation, we ill have the following result:

Contribution Margin = Fixed Costs + Profits

Contribution margin can also be presented as:

Contribution Margin = Contribution Margin per Unit x Units Sales

Finally, if we combine the contribution margin per unit with Fixed Assets + Profits, we obtain the following:

Contribution Margin per Unit x Unit Sales = Fixed Costs + Profits

Therefore, a required unit sale for a given desired income can be calculated as follows:

In our example of Friends Corporation, we can calculate sales volume (in units) necessary to gain the desired profit of $30,000 as follows:

In the same manner, we can calculate the sales units necessary to gain the desired profit of $40,000:

We can also calculate the amount of sales in dollars. We will apply a similar formula, except that instead of Contribution Margin per Unit we will use Contribution Margin Ratio:

Contribution Margin Ratio x Sales = Fixed Costs + Profits

After some rearrangements to the above equation, we come to the following one:

Let's determine required sales in dollars to generate $30,000 in profits:

Note that required sales for $30,000 desired profit can also be calculated by multiplying the required unit sales by sales price: 20,000 x $5 = $100,000. Also note that the $100,000 matches the required sales we calculated before using the equation technique.

The calculation for the $40,000 desired profit is as follows:

Again, the required sales can also be calculated by multiplying the required unit sales by the sales price: 25,000 x $5 = $125,000. This amount once again agrees to the required sales calculated using the equation technique.