Artisan Works is owned and operated by a craftsman who makes replicas of historic firearms for museums,sportsmen,and collectors.The data are as follows: $$\begin{array} { | l | r | }
\hline \text { Sales price per unit } & \$ 780 \
\hline \text { Variable cost per unit } & 470 \
\hline \text { Fixed costs per month } & 8370 \
\hline
\end{array}$$ If Artisan expects to sell 60 units per month,what is his margin of safety expressed in units per month?

Question

Artisan Works is owned and operated by a craftsman who makes replicas of historic firearms for museums,sportsmen,and collectors.The data are as follows: $$\begin{array} { | l | r | } 
\hline \text { Sales price per unit } & \$ 780 \
\hline \text { Variable cost per unit } & 470 \
\hline \text { Fixed costs per month } & 8370 \
\hline
\end{array}$$ If Artisan expects to sell 60 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 expected sales minus the break-even sales. The break-even point in units is calculated as fixed costs divided by the contribution margin per unit (sales price per unit minus variable cost per unit). Contribution margin per unit = $780 - $470 = $310. Break-even point = $8370 / $310 = 27 units. Margin of safety = 60 units (expected sales) - 27 units (break-even sales) = 33 units.

Artisan Works Is Owned and Operated by a Craftsman Who