Break-even point decreases as higher contribution margin offsets fixed cost increase Steps:

• Original contribution margin = $120 -$80 = $40/unit.
• New variable cost = $80 × (1 - 0.20) =$64/unit; new contribution margin = $120 -$64 = $56/unit.
• Original fixed costs = $56,000; new fixed costs =$56,000 × 1.20 = $67,200.
• Original break-even units = $56,000 /$40 = 1,400 units; 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 units = fixed costs / contribution margin per unit; the 40% rise in contribution margin ($40 to$56) more than offsets the 20% fixed cost increase, lowering the break-even point per the formula.

Why the others are wrong:

• A: Opposite direction—break-even decreases, does not increase.
• C: Wrong direction—break-even decreases, not increases by any amount.
• D: Wrong magnitude—decrease is 200 units, not 700.

Final answer: B