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## Answers

Mark SutherlandTitle:CFOCompany:Profit By Design CFO & Controller Servic..I'm not sure I completely understand your question, but "Target Profit" = (Target Profit $ + Fixed Cost $) / (Contribution Margin Ratio), where:

>Contribution Margin = Sales - Variable Costs, and

>Contribution Margin Ratio = Contribution Margin/Sales

Steve SheridanTitle:AssociateCompany:Dean Lewis AssociatesI think I understand your question. I have done something similar, but with fixed operating costs, trying to find what level of sales we need at a given GM to cover expenses.

In your case I created a simple spreadsheet you can try. I believe it's correct but please check the numbers.

Column A is revenue, column B = GM, column C = operating costs, and Column D = net income. Columns A and B are manual inputs. Column C = Column A * .27 (your operating costs as a percentage of revenue). Column D is the formula =ABS((A1*B1)-A1)-C1 where the first part calculates the COGS and then we subtract the operating expenses. If you then do trial and error in Column A, you'll see that at .26 GM, you need revenue of 2128 to get NI of 1000 (1000.16 to be exact).

At 27% GM, you need 2175 of revenue to get NI of 1000 (1000.50).

Those variable operating costs are the tricky part as they go up as revenue does.

Len GreenTitle:Performance Improvement Consultant and E..Company:Haygarth Consulting LLCLinkedIn Profile

Yep. aka breakeven analysis?

Steve SheridanTitle:AssociateCompany:Dean Lewis AssociatesYes, it is breakeven analysis, and then we added in the desired NI of 1000

Mark SutherlandTitle:CFOCompany:Profit By Design CFO & Controller Servic..It's "Target Profit" analysis, which is a derivative of breakeven analysis. If you know your fixed vs variable costs, you can skip the trial and error and divide [Target Profit + Fixed costs] by [Contribution margin ratio], which is [Sales - Var.Costs] / Sales.