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

The margin of safety is calculated as the difference between actual sales and break-even sales. Break-even sales = Fixed Costs / (Price per unit - Variable costs per unit) = $8,000 / ($720 - $470) = 32 units. Actual sales = 40 units. Margin of safety in units = 40 - 32 = 8 units. Margin of safety in sales revenue = 8 units * $720 = $5,760.

Antique Works Is Owned and Operated by a Craftsman Who