Break-even analysis with variable cost increase

Steps:

• Fixed costs = $1200 (total costs given without quantity implies fixed).
• Required contribution margin for 500-unit break-even = $1200 / 500 =$2.4 per unit.
• New variable cost = selling price - contribution margin = $10 -$2.4 = $7.6.
• Percentage increase = ($7.6 -$6) / $6 × 100% ≈ 26.7%, closest to 25%.

Why B is correct:

• A 25% increase raises variable cost to $7.5, yielding contribution of$2.5; break-even = $1200 /$2.5 = 480 units, closest to 500 per break-even formula Q = F / (P - V).

Why the others are wrong:

• A: 20% increase gives variable cost $7.2, contribution$2.8, break-even ≈429 units (too low).
• C: 33% increase gives variable cost ≈$8, contribution$2, break-even 600 units (too high).
• D: 42% increase gives variable cost ≈$$1.48, break-even ≈811 units (much too high).

Final answer: B