EXERCISE 6-13 (30 MINUTES)

2. An increase in the variable expenses as a percentage of the selling price

would result in a higher break-even point. The reason is that if variable

expenses increase as a percentage of sales, then the contribution mar-

gin will decrease as a percentage of sales. A lower CM ratio would mean

that more stoves would have to be sold in order to generate enough

contribution margin to cover the fixed costs.