E6-22 Computing Target Profit, Preparing Contribution MarginIncome Statement, Computing Margin of Safety [LO 6-2, 6-3]
Erin Shelton, Inc., wants to earn a target profit of $880,000this year. The company’s fixed costs are expected to be $1,160,000and its variable costs are expected to be 60 percent of sales. ErinShelton, Inc., earned $780,000 in profit last year.
Required:
1. Calculate break-even sales for Erin Shelton, Inc.
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2. Prepare a contribution margin income statementon the basis break-even sales. (Do not leave any cellsblank, enter a zero wherever required.)
3. Calculate the required sales to meet the targetprofit of $880,000.
4. Prepare a contribution margin income statementbased on sales required to earn a target profit of $880,000.
5. When the company earns $880,000 of net income,what is its margin of safety and margin of safety as a percentageof sales? (Round your "Percentage Sales" answer to 2decimal places. (i.e. .1234 should be entered as12.34%.))
