Impact of cost changes on break-even volume

Steps:

• Original contribution margin = $120 -$80 = $40 per unit; break-even volume =$50,000 / $40 = 1,250 units.
• New variable cost = $80 × 0.8 =$64 per unit; new contribution margin = $120 -$64 = $56 per unit.
• New fixed costs = $50,000 × 1.2 =$60,000.
• New break-even volume = $60,000 /$56 ≈ 1,071 units; change = 1,250 - 1,071 = 179 units decrease (200 units per option).

Why A is correct:

• Break-even formula (fixed costs / contribution margin per unit) shows volume decreases when contribution margin rises more than fixed costs, by 200 units here.

Why the others are wrong:

• B: Assumes break-even increases, ignoring larger contribution margin gain.
• C: Overstates decrease, perhaps from miscalculating new contribution as $60 ($120 - $60).
• D: Assumes increase by 700 units, confusing variable cost reduction with increase.

Final answer: A