Americana Replics is owned and operated by a craftsman who makes replicas of historic firearms for museums,sportsmen,and collectors.He is currently producing 63 flintlock muskets per month.Cost data for the muskets are as follows: $$\begin{array} { | l | l | }
\hline \text { Price per unit } & \$ 750 \
\hline \text { Variable costs per unit } & 480 \
\hline \text { Fixed costs per month } & 8,400 \
\hline
\end{array}$$ If Rustic expects to sell 60 units per month,how much is his margin of safety expressed in sales revenue? (Round unit calculations up to the next whole unit.)
A) $36,600
B) $31,875
C) $21,000
D) $13,440

Question

Americana Replics is owned and operated by a craftsman who makes replicas of historic firearms for museums,sportsmen,and collectors.He is currently producing 63 flintlock muskets per month.Cost data for the muskets are as follows: $$\begin{array} { | l | l | } 
\hline \text { Price per unit } & \$ 750 \
\hline \text { Variable costs per unit } & 480 \
\hline \text { Fixed costs per month } & 8,400 \
\hline
\end{array}$$ If Rustic expects to sell 60 units per month,how much is his margin of safety expressed in sales revenue? (Round unit calculations up to the next whole unit.)
A) $36,600
B) $31,875
C) $21,000
D) $13,440

Quizplus · Accepted Answer

The margin of safety in sales revenue is calculated as (Actual Sales - Break-even Sales) x Price per unit. Break-even sales = Fixed Costs / (Price per unit - Variable Cost per unit) = 8,400 / (750 - 480) = 30 units. Margin of safety in units = 60 - 30 = 30 units. Margin of safety in sales revenue = 30 x 750 = $21,000.

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