Choice "B" is correct. Currently, the contribution margin per unit is $35 ($85 sales price minus $50 variable costs). If variable costs increase by 20%, the contribution margin per unit becomes $25 ($85 sales price minus $60 ($50 x 1.2) variable costs). The contribution margin will decrease by $10 per unit. If production remains at 10,000 units, profits will decrease by $100,000 (10,000 units times a $10 decrease in contribution margin per unit). Fixed costs are not relevant in this determination. Choice "d" is incorrect. Increasing production by 2,000 units would decrease profit by $50,000 from the current levels (12,000 units times the new contribution margin of $25 per unit [$85 selling price minus the revised variable costs of $60 per unit] minus fixed costs of $300,000).Choices "a" and "c" are incorrect, based on the above explanations.