Answer:
Decrease the fixed cost
or
Increase the contribution margin by either increasing the selling price or decreasing the variable cost.
Explanation:
Assuming The values
Selling Price = $10
Variable cost = $5
Fixed Cost = $100
Contribution = $10 - $5 = $5
Current Break-even = 100 / $5 = 20 units or $200 (20x$10)
Break even analysis formula = Fixed Cost / ( Sales Price per unit - Variable cost per unit )
Desire of 20% profit can be incorporation in Break-even analysis as follows
Desired Profit = $200 x 20% = $40
Reduce the fixed cost by $40
Revised Fixed cost =$100 - $40 = $60
Sales = ( Desired Profit + fixed cost ) / Contribution
20 units = ( $40 + $60 ) / $5
20 units = $100 / $5
20 units = 20 units
Reduce the fixed cost by $40
Increase contribution by $7
There are two options to increase Contribution
Increase in sale price = $12 - $5 = $7
Decrease in Variable cost = $10- $3 = $7
=$100 - $40 = $60
Sales = ( Desired Profit + fixed cost ) / Contribution
20 units = ( $40 + $100 ) / $7
20 units = $140 / $7
20 units = 20 units
