2. To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1)

Sales returns and allowances 5,000 0.7 6,000 0.9

Net sales $ 750,000 100.0% $ 670,000 100.0%

Cost of goods sold 292,500 39.0 274,700 41.0

Gross profit $ 457,500 61.0% $ 395,300 59.0%

Selling expenses $ 172,500 23.0% $ 160,800 24.0%

Administrative expenses 82,500 11.0 80,400 12.0

Total operating expenses $ 255,000 34.0% $ 241,200 36.0%

Income from operations $ 202,500 27.0% $ 154,100 23.0%

Other income 7,500 1.0 6,700 1.0

Income before income tax $ 210,000 28.0% $ 160,800 24.0%

Income tax expense 60,000 8.0 53,600 8.0

Net income $ 150,000 20.0% $ 107,200 16.0%

2. The vertical analysis indicates that the costs (cost of goods sold, selling expenses, and administrative expenses) as a percent of sales improved from 2007 to 2008. As a result, net income as a percent of sales increased from 16.0% to 20.0%. The sales promotion campaign appears successful. The selling expenses as a percent of sales declined, suggesting that the increased cost was more than made up by increased sales.