If a company successfully reduces its total fixed costs while maintaining the same selling price and variable cost per unit, what will be the effect on the break-even point and the margin of safety?

Correct answer: B) Break-even point will decrease, Margin of safety will increase.

Explanation

A reduction in fixed costs means fewer units need to be sold to cover them, hence the break-even point decreases. Because the break-even point is lower, the cushion between expected sales and break-even sales (the margin of safety) becomes larger.