Erin Shelton, Inc., wants b earn a target profit of $830,000 this year. the comp

Question

Erin Shelton, Inc., wants b earn a target profit of $830,000 this year. the company 's fixed costs are expected to be $1,060,000 and its variable costs are expected to 60 percent of sales. Erin Shelton, Inc., earned $730,000 in profit last year. Required: Calculate break-even sales for Erin Stolen, Inc. Prepare a contribution margin income statement on the basis break-even sales. Calculate the required sales to meet target profit of $830,000. Using a contribution margin income statement format with the sales to meet target profit of $830,000.

Explanation / Answer

(1) - (4): All answers are correct.

Formulas used:

(A) Breakeven sales ($) = Fixed cost / (1 - Contribution Margin ratio) = FC / (1 - 0.6) = FC / 0.4

(B) Breakeven sales to achieve a tarfet profit of Z = (FC + Z) / 0.4

(5)

Margin of Safety = Required sales to get desired profit - Break-even sales

= $(4,725,000 - 2,650,000) = $2,075,000

Margin of safety as % of Sales = $(2,075,000 / 4,725,000) x 100 = 43.92%

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