A company has sales of one of its products of $400,000 per year and a contribution margin ratio of 20%. Its margin of safety is $40,000.
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A company has sales of one of its products of $400,000 per year and a contribution margin ratio of 20%. Its margin of safety is $40,000.
What is the company’s breakeven point?

$360,000$320,000$288,000$80,000Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (A) is correct. The margin of safety equals sales above the breakeven point. Thus, if the margin of safety is $40,000, the breakeven point must be $360,000 ($400,000 sales – 40,000 ).