Answer:
current contribution margin = $2.20 - $1.10 = $1.10
total fixed costs = $110,000
break even point = $110,000 / $1.10 = 100,000 units
sales level to earn $24,000 in operating profits = $134,000 / $1.10 = 121,819 units
if fixed costs increase to $125,000
new contribution margin = $2.20 - $1 = $1.20
new break even point = $125,000 / $1.20 = 104,167 units
sales level to earn $24,000 in operating profits = $149,000 / $1.20 = 124,167 units
The increase in contribution margin (9.09%) is not large enough to offset the increase in fixed costs (13.64%), that is why you will need to sell more units in order to make the same operating profits (124,167 - 121,819 = 2,348 units more).
