Question

Erin Shelton, Inc. wants to earn a target profit of $800,000 this year. The company’s fixed costs are expected to be $1,000,000 and its variable costs are expected to be 60 percent of sales. Erin Shelton, Inc. earned $700,000 in profit last year.

Required:
1. Calculate break-even sales for Erin Shelton, Inc.
2. Prove your answer from requirement 1 using a contribution margin income statement format.
3. Calculate the required sales to meet the target profit of $800,000.
4. Prove your answer from requirement 3 using a contribution margin income statement format.
5. When the company earns $800,000 of net income, what is its margin of safety and margin of safety as a percentage of sales? Interpret your findings.



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  • CreatedFebruary 27, 2015
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