E6-24 (Algo) Computing Target Profit, Preparing Contribution Margin Income Statement, Computing Margin of Safety [LO 6-2, 6-3]

Erin Shelton, Inc., wants to earn a target profit of $880,000 this year. The companys fixed costs are expected to be $1,160,000 and its variable costs are expected to be 60 percent of sales. Erin Shelton, Inc., earned $780,000 in profit last year.

Required:

1. Calculate break-even sales for Erin Shelton, Inc.

2. Prepare a contribution margin income statement on the basis break-even sales.

3. Calculate the required sales to meet the target profit of $880,000.

4. Prepare a contribution margin income statement based 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 percentage of sales?