If a business had sales of $4,000,000 and a margin of safety of 25%,what was the break-even point?
A)$5,000,000
B)$3,000,000
C)$12,000,000
D)$1,000,000

Question

Quizplus · Accepted Answer

To find the break-even point, we need to use the formula:

Break-even point = Fixed costs / Contribution margin

We don't have information about the fixed costs or the contribution margin, but we do know the margin of safety. Margin of safety is the amount by which actual or projected sales exceed break-even sales. In this case, the margin of safety is 25%, which means that actual or projected sales are 125% of break-even sales.

Therefore, we can set up the equation:

Actual sales = 125% x Break-even sales
$4,000,000 = 1.25 x Break-even sales
Break-even sales = $4,000,000 / 1.25 = $3,200,000

So the break-even point is $3,200,000. However, none of the answer choices match exactly. The closest answer is B, $3,000,000, which is the only possible answer.

If a Business Had Sales of $4,000,000 and a Margin