Impact of Fixed Cost Changes on Break-Even and Margin of Safety

Steps:

• Recall break-even point (BEP) formula: Fixed costs / Contribution margin per unit; increasing fixed costs raises BEP if contribution margin unchanged.
• Recall margin of safety (MOS) formula: Actual sales - BEP sales; higher BEP reduces MOS if actual sales constant.
• Note "increase to $20,000" implies higher fixed costs, so BEP rises and MOS falls.
• No original fixed costs, contribution margin, or sales data provided to quantify 750-unit change.

Why C is correct:

• Not applicable; standard CVP analysis predicts BEP increase and MOS decrease (option B), but lacks data for exact shifts.

Why the others are wrong:

• A: BEP cannot decrease with higher fixed costs.
• B: Direction correct, but no data confirms 750-unit magnitude.
• D: MOS cannot increase with higher BEP.

Not enough information.

Final answer: Not enough information.