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.