If the breakeven point is reduced, the margin of safety is also reduced.

Question

Quizplus · Accepted Answer

The breakeven point and margin of safety have an inverse relationship. If the breakeven point is reduced, the company will have a lower sales volume that needs to be achieved to cover all fixed and variable costs. This will result in a higher margin of safety (the difference between actual sales and the breakeven point). Therefore, if the breakeven point is reduced, the margin of safety is actually increased, not reduced.

If the Breakeven Point Is Reduced, the Margin of Safety