Q20-18RQ - Horngren'S Financial And Managerial Accounting

Question

Question: Why is the calculation to determine the target profit considered a variation of the breakeven calculation?

Step-by-Step Solution

Answer

Answer

 

The target profit is considered as variation of break-even calculation because at break-even profit is zero whereas in target profit amount of profit is pre-decided.

Step 1: Meaning of target profit

The target profit is the management’s expected goal that results from net sales revenue reduced by variable costs and fixed costs.

Step 2: Why is the calculation to determine the target profit considered a variation of the break-even calculation

The calculation to determine the target profit is considered a variation of the break-even calculation because the break-even point with $0 is replaced with the target profit keeping other things constant.