Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums, sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows:
$$\begin{array} { l l }
\text { Price } & \$ 720 \text { per unit } \
\text { Variable cost } & \$ 470 \text { per unit } \
\text { Fixed costs } & \$ 8,000 \text { per month }
\end{array}$$
-
How much is his margin of safety expressed in units per month?

Question

Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums, sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows:
$$\begin{array} { l l } 
\text { Price } & \$ 720 \text { per unit } \
\text { Variable cost } & \$ 470 \text { per unit } \
\text { Fixed costs } & \$ 8,000 \text { per month }
\end{array}$$
-
How much is his margin of safety expressed in units per month?

Quizplus · Accepted Answer

The margin of safety in units is calculated as (Current Sales - Break-even Sales). Break-even Sales = Fixed Costs / (Price - Variable Cost) = $8,000 / ($720 - $470) = 32 units. Margin of Safety = 40 units - 32 units = 8 units.

Arquebus Company Is Owned and Operated by a Craftsman Who