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 sales revenue?

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 sales revenue?

Quizplus · Accepted Answer

Margin of safety = (Actual sales - Breakeven sales) / Actual salesBreakeven sales = Fixed costs / (Price per unit - Variable cost per unit)Breakeven sales = $8,000 / ($720 - $470) = $24,000Margin of safety = ($24,000 - $22,400) / $24,000 = $1,600

Arquebus Company Is Owned and Operated by a Craftsman Who