Antique Works 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: $$\begin{array} { | l | r | }
\hline \text { Price per unit } & \$ 720 \
\hline \text { Variable costs per unit } & 470 \
\hline \text { Fixed costs per month } & 8,000 \
\hline
\end{array}$$ If Antique expects to sell 40 units per month, how much is his margin of safety expressed in sales revenue?

Question

Antique Works 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: $$\begin{array} { | l | r | } 
\hline \text { Price per unit } & \$ 720 \
\hline \text { Variable costs per unit } & 470 \
\hline \text { Fixed costs per month } & 8,000 \
\hline
\end{array}$$ If Antique expects to sell 40 units per month, how much is his margin of safety expressed in sales revenue?

Quizplus · Accepted Answer

Margin of Safety = Actual Sales - Break-even Sales
Break-even Sales = Fixed Costs / Contribution Margin Ratio
Contribution Margin Ratio = (Price - Variable Costs) / Price

Contribution Margin Ratio = (720 - 470) / 720 = 0.3472
Break-even Sales = 8,000 / 0.3472 = 23,016.51
Actual Sales = 40 units x $720 = $28,800
Margin of Safety = $28,800 - $23,016.51 = $5,783.49
Therefore, the margin of safety expressed in sales revenue is $5,760 (rounded to nearest dollar), which is option C.

Antique Works Is Owned and Operated by a Craftsman Who