Choice "D" is correct. The contribution margin at the time the company achieves a $130,000 margin of safety is $364,000. The margin of safety is the excess of sales over break even sales. Assuming variable costs are 60% of selling price, contribution margin may be computed at 40% of selling price as follows:
| Cost component
| Breakeven
| Margin of safety
| Total
|
|---|
Sales | 100% | $780,000 | $130,000 | $910,000 |
Variable costs | 60% | 468,000 | 78,000 | 546,000 |
Contribution margin | 40% | $312,000 | $ 52,000 | $364,000 |
Choice "c" is incorrect. Total variable costs are $546,000 at breakeven plus margin of safety, not contribution margin.Choice "a" is incorrect. Total sales are $910,000 at breakeven plus margin of safety. Choice "b" is incorrect per computation above.
