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E6-22 Computing Target Profit, Preparing Contribution Margin Income Statement, Computing Margin of Safety [LO 6-2, 6-3] Erin...

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Accounting

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.


  
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%.))

Answer & Explanation Solved by verified expert
4.4 Ratings (831 Votes)
1 Break Even Sales Total fixed costs Contribution margin ratio Break Even Sales 1160000 40 Break Even Sales in Dollars 2900000 2 Contribution margin income statement Sales 2900000 Less    See Answer
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