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Definition

Target net income

Target net income is the income objective set by the management. It indicates the sales necessary to achieve a specified level of income.

The formulas for determining sales required to earn target net income are:

Required sales = Variable costs + Fixed costs +Target net income

Required sales in units = (Fixed costs + Target net income) ÷ Contribution margin per unit

Required sales in dollars = ( Fixed costs + Target net income) ÷ Contribution margin ratio.

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