Change in Margin of Safety from Cost Adjustments Steps:

• Calculate current contribution margin: $200 -$140 = $60 per unit.
• New contribution margin: $200 -$120 = $80 per unit.
• Current break-even units: $12,000 /$60 = 200 units.
• New break-even units: $20,000 /$80 = 250 units; margin of safety decreases by 50 units regardless of budgeted sales volume. Why A is correct:
• Margin of safety in units decreases by the net increase in break-even units, per the formula: change = (old FC / old CM) - (new FC / new CM) = 200 - 250 = -50. Why the others are wrong:
• B: Ignores the larger fixed cost increase outweighing contribution margin gain.
• C: Overstates decrease; net effect is exactly 50 units, not 90.
• D: Reverses the direction; higher fixed costs raise break-even, reducing margin of safety. Final answer: A