Here's a third example.

Company C sells a product whose variable cost per unit are $30.

Total fixed costs for the year are $40,000.

The company anticipates selling 2,000 units.

What price must company C charge to make a profit of $60,000?

Take a few minutes, give it a try,

then come back, and we'll see how you did.

Oh, and meet me on the white board.

Are you hooked on these your turn's yet?

I sure hope so.

OK, we have here- let's orient ourselves,

we've got our handy profit formula up here.

We've got our facts over here, again,

we have the five variables we know values for four of them we're solving for price.

So what price do we need to set to get this target profit of $60,000?

Well, let's see. Let's start to substitute in.

We can't substitute anything for price because that's what we're trying to solve for.

We have a quantity- let's see,

our expected units are 2,000,

so we expect to sell 2,000 units.

We have a variable cost per unit of $30

for the 2,000 units.

We have fixed costs of $40,000

and we're shooting for a target profit of $60,000.

OK, let's do a little bit of rearranging here.

I'm going to just bring this right down- P*2,000

units is equal to- and I'm going to put

everything out over here on the other side of this equation.

We'll keep that target profit of $60,000,

the fixed costs are going to flip over to

the other side so we're going to flip their sign.

And then we've got $60,000 in variable cost.

That's a negative, so when it moves to the other side it becomes a positive.

OK.

So now what we're looking for- let's think about what this tells us.

What we're looking for is the price that we need to

charge on these 2,000 units in order to

be able to generate the target profit plus

the fixed cost plus the variable cost for those 2,000 units.

Let's see, that's $160,000.

So, in order to generate $160,000 from these 2,000 units,

we need to be able to price those at $80.

If we do that, we'll see a target profit of $60,000. Awesome.