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# Forecast Profit

beavis182
Well-KnownRegistered Posts:

**130**
Can someone help me work out how to find the forecast profit?

if a product has a forecast profit of '£' and an order quantity of 'x' how much must variable costs go up before the break-even point is reached??

if a product has a forecast profit of '£' and an order quantity of 'x' how much must variable costs go up before the break-even point is reached??

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## Comments

2,034I'm sorry I don't understand your question

I look at forecast profit on the cost behaviour blog

Email me if you'd like it sent as an attachment

And please re-word your question

[email protected]

www.sandyhood.com

1,954Although you don't mention fixed costs, which would need to be split over each unit of production first.

Maybe if you put the whole question on here?

130Contribution of £10 and fixed costs of £7000. how many units to sell to make a profit of £4000. I worked that out as

fixed costs + target profit

divided by

contribution per unit = numbers of units which i worked out as 1100 units??

130with a forecast profit of £500 for order quanity 25. how much must variable costs go up before the break even point is reached?

£500/25 = £20 selling price per unit?

not sure what to do now?

207Yes!

Total Fixed costs/ Contribution Per unite = BEP in Units

Total Fixed Costs + Desired Profit/Contribution Per Unit = BEP In Units

Multiply any of the above by your selling price and you will have your BEP in Sales Revenue.

130total cost per unit of £16.36?

207For the above question the answer is as follows:

Fixed Cost + Desired Profit (7,000+4,000 = ) £11,000/10 = 1,100 Units

1,100 Units x £20 = £22,000 which is your BEP in sales revenue.

Total cost per Unit = (FC -£7,000/ 1,100 Units = ) £6.36

Therefore, FC Per Unit - £6.36 + VC Per Unit - £10 = £16.36

So you are perfectly Correct!

Thanks

130Now just need to work out the second part where i need to work out how much variable cost needs to go up before BEP is reached?

Do you know the formula for this?

207Wouldnt this be to take your £10 variable cost and multiply it by £1,100 = £11,000??

Therefore, Desired Profit = £4,000 + FC - £7,000 + Total Variable Cost - (£10*1,100 = ) £11,000. - Total £22,000.

Which is you BEP in sales revenue, where your total costs + Desired Profit meet your Revenue Needed.

Hope this helps you.

130Thanks for your all your help, im glad i got the first part right anyway :-)

2,034Price ........................ £20.00

Variable cost per unit ..

£10.00Contribution per unit ..- £10.00

Forecast sales ............ 1,100 units

Total contribution ........ £11,000

Fixed cost ...................

£7,000Profit .......................... £4,000

Assuming I've got this right,then the variable costs would have to rise by £4,000 to take the profit from £4,000 to the breakeven level at 1,100 units.

So £4,000 divided by 1,100 would give you the value of the increase per unit.

£4,000= £3.63(6363)1,100 units

As a % of the opriginal variable cost this is an increase of £3.64/£10.00 x100 = 36.36%

In a minute I'll post a formulaic solution.

[email protected]

www.sandyhood.com

2,034(Price per unit - variable cost per unit) x units sold - fixed costs = Profit

In this examaple

[(£20 - £10) x 1,100] - £7,000 = £4,000

So to lower the profit to £0 you need to increase the variable cost to the point where

(Price per unit - variable cost per unit) x units sold = fixed cost

so divide both parts by units sold to give

Price per unit - variable cost per unit =

fixed cost................................................... units sold

So you need the Price per unit - variable cost per unit (or contribution per unit) to be equal to the fixed cost per unit

In this example:

£20 less variable cost =

£7,000........ = £ 6.36(3636).......................... 1,100 units

So price - fixed cost per unit = variable cost per unit at breakeven

£20.00 - £6.36 = £13.64

As the original variable cost was £10.00 per unit this is a £3.64 increase (36.36%)

[email protected]

www.sandyhood.com

135