Break-even units change from cost structure shift

Steps:

• Original contribution margin = $120 -$80 = $40; break-even units =$56,000 / $40 = 1,400 units.
• New fixed costs = $56,000 × 1.20 =$67,200.
• New variable costs = $80 × 0.80 =$64; new contribution margin = $120 -$64 = $56.
• New break-even units = $67,200 /$56 = 1,200 units; change = 1,400 - 1,200 = decrease of 200 units.

Why B is correct:

• Break-even formula (fixed costs / contribution margin per unit) shows the higher contribution margin offsets the fixed cost rise, lowering required units by exactly 200 per the calculations.

Why the others are wrong:

• A: Break-even decreases due to improved margin, not increases.
• C: Net effect is a 200-unit drop, not a 700-unit rise.
• D: Decrease magnitude is 200 units, not 700.

Final answer: B