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Unformatted text preview: he totalsales line starting at the
zero activity level,
Plot the total fixed cost using a
horizontal line,
Plot the totalcost line (starts at the
fixedcost line at zero activity),
Determine the breakeven point from
the intersection of the totalcost
line and the totalsales line. Chapter
536 BreakBreakEven Analysis: Graphic Presentation Chapter
537 BreakBreakEven Analysis: Target Net Income
Rather than just breaking even, management usually
sets an income objective called “target net income.” Indicates sales or units necessary to achieve this
specified level of income.
Can be determined from each of the approaches used
to determine breakeven sales/units:
break From a mathematical equation,
By using contribution margin, or
From a costvolume profit (CVP) graph.
Expressed either in sales units or in sales dollars.
Chapter
538 BreakBreakEven Analysis: Target Net Income
Mathematical Equation
Using the basic formula for the breakeven point, simply include the desired net income as a factor.
The computation for Vargo Video is...
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 Winter '14
 Finance

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