Question

Erin Shelton, Inc., wants to earn a target profit of $820,000 this year. The company’s fixed costs are expected to be $1,040,000 and its variable costs are expected to be 50 percent of sales. Erin Shelton, Inc., earned $720,000 in profit last year.

Required:
1. Calculate break-even sales for Erin Shelton, Inc.


  
2. Prepare a contribution margin income statement on the basis break-even sales. (Do not leave any cells blank, enter a zero wherever required.)



3. Calculate the required sales to meet the target profit of $820,000.



4. Prepare a contribution margin income statement based on sales required to earn a target profit of $820,000.



5. When the company earns $820,000 of net income, what is its margin of safety and margin of safety as a percentage of sales? (Round your "Percentage Sales" answer to 2 decimal places. (i.e. .1234 should be entered as 12.34%.))

Answer 1