A Formula For The Units To Satisfy An Operation’s Desired Rate Of Return In CVP Analysis - A Conceptual Approach

Abstract

A common formula presented in many managerial- and cost-accounting textbooks makes possible the determination of the quantity of units which must be produced and sold to generate a desired dollar-amount of operating income. This article addresses the question “What formula can be used to determine the quantity of units needed to yield a desired operating-income level expressed as a rate of return on total operations-costs?” Algebraic and conceptual issues regarding the derivation of such a formula are identified. The desired formula is initially derived via a conceptual approach, which is verified with algebraic solutions afterward. An example problem is given, followed by concluding remarks.