Erin Shelton. Inc., wants to earn a target profit of $830,000 this year. The com

Question

Erin Shelton. Inc., wants to 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 be 60 percent of sales. Erin Shelton. Inc., earned $730,000 in profit last year. Calculate break-even sales for Erin Shelton, Inc. Prepare a contribution margin income statement on the basis break-even sales. Calculate the required sales to meet the target profit of $830,000. Using a contribution margin income statement format with the sales to meet the target profit of $830,000.

Explanation / Answer

SOLUTION :

         1

BREAK EVEN SALES (BES) = (FIXED COST / CONTRIBUTION %)

         2,650,000

         2

CONTRIBUTION MARGIN INCOME STATEMENT

SALES (CONTRIBUTION/40%)

         2,650,000

LESS : VARIABLE COST (2650000*.60)

         1,590,000

CONTRIBITION MARGIN (PROFIT + FIXED COST)

         1,060,000

LESS : FIXED COST

         1,060,000

PROFIT

                        -  

         3

TARGET SALES TO MAKE PROFIT OF $830000

(REQUIRED PROFIT + FIXED COST)/40% = (830000+1060000)/40%

         4,725,000

         4

CONTRIBUTION MARGIN INCOME STATEMENT TO MAKE $830000 PROFIT

SALES (1890000/40%)

         4,725,000

LESS : VARIABLE COST (4725000*.60)

         2,835,000

CONTRIBITION MARGIN (PROFIT + FIXED COST)

         1,890,000

LESS : FIXED COST

         1,060,000

PROFIT

            830,000

         1

BREAK EVEN SALES (BES) = (FIXED COST / CONTRIBUTION %)

         2,650,000

         2

CONTRIBUTION MARGIN INCOME STATEMENT

SALES (CONTRIBUTION/40%)

         2,650,000

LESS : VARIABLE COST (2650000*.60)

         1,590,000

CONTRIBITION MARGIN (PROFIT + FIXED COST)

         1,060,000

LESS : FIXED COST

         1,060,000

PROFIT

                        -  

         3

TARGET SALES TO MAKE PROFIT OF $830000

(REQUIRED PROFIT + FIXED COST)/40% = (830000+1060000)/40%

         4,725,000

         4

CONTRIBUTION MARGIN INCOME STATEMENT TO MAKE $830000 PROFIT

SALES (1890000/40%)

         4,725,000

LESS : VARIABLE COST (4725000*.60)

         2,835,000

CONTRIBITION MARGIN (PROFIT + FIXED COST)

         1,890,000

LESS : FIXED COST

         1,060,000

PROFIT

            830,000

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