Antique Works is owned and operated by a craftsman who makes replicas of historic firearms for museums,sportsmen,and collectors.The data are as follows: $$\begin{array} { | l | r | }
\hline \text { Sales price per unit } & \$ 800 \
\hline \text { Variable cost per unit } & 470 \
\hline \text { Fixed costs per month } & 8,580 \
\hline
\end{array}$$ If Antique expects to sell 40 units per month,what is his margin of safety expressed in units per month?

Question

Antique Works is owned and operated by a craftsman who makes replicas of historic firearms for museums,sportsmen,and collectors.The data are as follows: $$\begin{array} { | l | r | } 
\hline \text { Sales price per unit } & \$ 800 \
\hline \text { Variable cost per unit } & 470 \
\hline \text { Fixed costs per month } & 8,580 \
\hline
\end{array}$$ If Antique expects to sell 40 units per month,what is his margin of safety expressed in units per month?

Quizplus · Accepted Answer

The margin of safety in units is calculated as the difference between expected sales and break-even sales. Break-even sales = Fixed Costs / (Sales price per unit - Variable cost per unit) = 8,580 / (800 - 470) = 26 units. Margin of safety = Expected sales - Break-even sales = 40 - 26 = 14 units.

Antique Works Is Owned and Operated by a Craftsman Who