Final answer:
The break-even equation can be modified to take into account the sales required to earn a desired profit by adding the desired profit to the fixed costs in the equation.
Step-by-step explanation:
The break-even equation can be modified to take into account the sales required to earn a desired profit by adding the desired profit to the fixed costs in the equation.
The break-even equation calculates the sales needed to cover all costs, so by including the desired profit, we are determining the sales required to cover costs and achieve the desired profit.
The modified break-even equation is:
Sales for desired profit = Fixed costs + Desired profit / Contribution margin
For example, let's say a company's fixed costs are $10,000, the desired profit is $5,000, and the contribution margin is 0.5. Using the modified break-even equation, the required sales to earn the desired profit would be:
(10,000 + 5,000) / 0.5 = $30,000