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: Sales price per unit $ 800 Variable cost per unit 500 Fixed costs per month 8 comma 700 If Artisan expects to sell 40 units per month, what is his margin of safety expressed in units per month?

The margin of safety in units per month is 11 units per month.

Explanation:

Margin of safety in break even analysis refers to the number of units or amount in excess of the break even number of units or amount. The margin of safety in units is calculated as follows,

Margin of safety = Budgeted/Actual sales in units - Break even in units

We first need to calculate the break even in units. The formula for break even in units is,

Break even in units = Fixed cost / Contribution margin per unit

Break even in units = 8700 / (800 - 500)

Break even in units = 29 units per month

Margin of safety in units = 40 - 29 = 11 units per month

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