Question

At the break-even point, sales and costs are exactly equal. However, the goal of most companies is to make a profit. When a company decides that it wants to earn more than the break-even point of income, it must define the amount it thinks it will realistically make. By modifying the break-even equation, the sales required to earn a target or desired amount of profit may be computed.

Complete the following:
If a company makes $3 off of each unit it sells and has a target operating income of $1,200, then it must sell 400 units. Similarly, if a company has a target operating income of $175,000 and knows that total expenses for the period will be $25,000, how much revenue must it earn to reach its target operating income? ____

Answer 1

To achieve a target operating income of $175,000 with total expenses of $25,000, the company must generate a revenue of $200,000.

Step-by-step explanation:

In order to calculate the revenue needed to reach a target operating income, we need to add the target profit to the total expenses. Given a target operating income of $175,000 and total expenses of $25,000, the company must generate sufficient revenue to cover both its costs and desired profit.The calculation is straightforward. Simply add the target operating income to the total expenses to find out how much revenue is needed:

• Target Operating Income: $175,000
• Total Expenses: $25,000
• Required Revenue = Target Operating Income + Total Expenses
• Required Revenue = $175,000 + $25,000
• Required Revenue = $200,000

Therefore, the company must earn revenue of $200,000 to achieve its target operating income of $175,000, after accounting for total expenses of $25,000.