Antique Works is owned and operated by a craftsman who makes replicas of historic firearms for museums, sportsmen, and collectors. The cost data are as follows: $$\begin{array} { | l | r | }
\hline \text { Price per unit } & \$ 720 \
\hline \text { Variable costs per unit } & 470 \
\hline \text { Fixed costs per month } & 8,000 \
\hline
\end{array}$$ 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 cost data are as follows: $$\begin{array} { | l | r | } 
\hline \text { Price per unit } & \$ 720 \
\hline \text { Variable costs per unit } & 470 \
\hline \text { Fixed costs per month } & 8,000 \
\hline
\end{array}$$ 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 / (Price per unit - Variable costs per unit) = 8,000 / (720 - 470) = 32 units. Margin of safety = 40 - 32 = 8 units.

Antique Works Is Owned and Operated by a Craftsman Who