Shape It Manufacturing Company makes sheet metal products. For the past several years, the company€™s income has been declining. Its statements of cost of goods manufactured and income statements for the last two years are shown here. Review and comment on why the ratios for Shape It€™s profitability have deteriorated.

1. In preparing your comments, compute the following ratios for each year:
a. Ratios of cost of direct materials used to total manufacturing costs, direct labor to total manufacturing costs, and total overhead to total manufacturing costs. (Round to one decimal place.)
b. Ratios of sales salaries and commission expense, advertising expense, other selling expenses, administrative expenses, and total selling and administrative expenses to sales. (Round to one decimal place.)
c. Ratios of gross margin to sales and net income to sales. (Round to one decimal place.)
2. From your evaluation of the ratios computed in 1, state the probable causes of the decline in net income.
3. What other factors or ratios do you believe should be considered in determining the cause of the company€™s decreasedincome?

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Shape It Manufacturing Company Statements of Cost of Goods Manufactured For the Years Ended December 31 This Year Last Year Direct materials used: Materials inventory, beginning S 91,240 987,640 $1,078,880 95,020 S 93,560 959,940 $1,053,500 91,240 Direct materials purchased (net) Cost of direct materials available for use Less materials inventory, ending Cost of direct materials used Direct labor Total over Total manufacturing costs Add work in process inventory, beginning Total cost of work in process during the period Less work in process inventory, ending Cost of goods manufactured 983,860 571410 482,880 $2,038,150 148,875 $2,187,025 146,750 $2,040,275 S 962,260 579,720 452,110 $1,994,090 152,275 $2,146,365 148,875 $1,997490 Shape It Manufacturing Company Income Statements For the Years Ended December 31 This Year Last Year $2,942,960 $3,096,220 es Cost of goods sold Cost of goods manufactured Cost of goods available for sale Less finished goods inventory, ending 142,640 2,040,275 $2,182,915 S 184,820 1,997,490 $2,182,310 142,640 1,996,285 S 946,675 2,039.670 0 Gross margin Selling and administrative expenses: S1,056,550 Sales salaries and commissions Advertising expense Other selling expenses Administrative expenses Total selling and administrative expenses S 394,840 329,480 194,290 72,930 195,530 82,680 242,600 836,230 S110,445 792,230 264,320 Income from operations Other revenues and expenses: Interest expense Income before income taxes Income tax expense Net income 54,160 56,285 19,137 S 37,148 S 207,505 87,586 S 119,919