Question $(3)$

Directions: Click the Case Link above and use the information provided in Hearth and Home, Parts A and $B,$ to answer this question:

If you assume that the failure of a troubled competitor early in the fiscal year enables Hearth and Home to raise its selling prices $8\%$ above its anticipated level, which hypothesis would be the most reasonable?

Cost of goods sold increase and SG&A expenses decrease as percentages of sales.

SG&A expenses increase and cost of goods sold decrease as percentages of sales.

Both cost of goods sold and SG&A expenses as percentages of sales decrease.