Question: E6-24 (Algo) Computing Target Profit, Preparing Contribution Margin Income Statement, Computing Margin of Safety [LO 6-2, 6-3] Erin Shelton, Incorporated, wants to earn a target

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

Erin Shelton, Incorporated, wants to earn a target profit of $850,000 this year. The companys fixed costs are expected to be $1,100,000 and its variable costs are expected to be 60 percent of sales. Erin Shelton, Incorporated, earned $750,000 in profit last year.

Required:

Calculate break-even sales for Erin Shelton, Incorporated.

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

Calculate the required sales to meet the target profit of $850,000.

Prepare a contribution margin income statement based on sales required to earn a target profit of $850,000.

When the company earns $850,000 of net income, what is its margin of safety and margin of safety as a percentage of sales?

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