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?

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 ).