Fixed Costs Rise: Effects on Key Metrics

Steps:

• Contribution per unit = selling price per unit - variable cost per unit; unchanged as fixed costs excluded.
• Break-even units = total fixed costs / contribution per unit; rises with higher fixed costs.
• Margin of safety units = actual output - break-even units; falls as break-even rises while output fixed.
• Output unchanged means no shift in sales volume to offset changes.

Why C is correct:

• Break-even rises per formula (fixed costs / contribution per unit), shrinking margin of safety (actual - break-even) with static output and unchanged contribution.

Why the others are wrong:

• A: Contribution unchanged, not increased; break-even rises, not no change.
• B: Contribution unchanged, not decreased; break-even rises, not no change.
• D: Margin of safety decreases, not increases.

Final answer: C