While planning and doing sensitivity analysis regarding breakeven is an important and valuable exercise. Rarely a manager content to simply breakeven. Frequently, managers set some level of target profit that is greater than zero. And it's helpful to assess what volume, price, variable cost per unit, or fixed cost level is necessary to achieve that target. Let's return to our prior example. Rather than breakeven, suppose management at the t-shirt maker had set a target profit of $20,000. How many units does the company need to sell to hit that target profit? Well in this case, not only does the company need to sell enough units for the total contribution margin to cover the $40,000 fixed cost, as would breakeven. It also needs to generate an additional $20,000 in profit. So it is looking for how many units it needs to sell to generate a total contribution margin of $60,000, so it needs to sell 10,000 units. Now let's look at the big picture with this. Take a look at the profit formula again. Notice that there are five unknowns or variables in this formula. We have price, variable cost per unit, number of units, fixed costs, and profit. If the manager can make an assumption about four of these, he can solve for the value of the fifth. For example, lets go back to the t-shirt maker. Suppose we know that price is $10, variable cost per unit is $4, number of units is 10,000 and total fixed cost is $40,000. Then what is our expected profit? Or suppose we know that variable cost per unit is $4, number of units is 10,000, total fixed costs are $40,000, and target profit is $20,000. What price must the t-shirt maker set to hit this target profit? Or suppose we know the price is $10, number of units is 10,000, total fixed costs are $40,000, and target profit is $20,000. How low must variable cost per unit be to hit this target profit? Or suppose we know that price is $10, variable cost per unit is $4, total fixed costs are $40,000, and target profit is $20,000. How many units must the t-shirt maker sell to hit this target profit? Or suppose we know that price is $10, variable cost per unit is $4, number of units is 10,000, and target profit is $20,000. How low must total fixed cost be for the t-shirt maker to hit this target profit? Get the picture? Therein lies the power of the profit formula and CVP analysis. A very powerful tool that managers can use to conduct sensitivity analysis around profit planning.