Pricing Decision BPO’s management believes the company has been successful at increasing sales because it has not increased the selling price of its products even though its competition has increased prices and costs have increased. Price and cost relationships in Year 1 were established because they represented industry averages. The following income statements are available for BPO’s first three years of operation:

Required 1. Using the format in Exhibit 13-6, prepare common-size comparative income statements for the three years.
2. Explain why net income has decreased while sales have increased.
3. Prepare an income statement for Year 4. Sales volume in units is expected to increase by 10%, and costs are expected to increase by 8%.
4. Do you think BPO should raise its prices or maintain the same selling prices? Explain your answer.

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Sales Cost of goods sold Gross profit Operating expenses Net income Year 3 Year 2 Year 1 $125,000 $110,000 $100,000 62,000 49,000 40,000 $ 63,000 $ 61,000 $ 60,000 53,000 49,000 45,000 $ 10,000 $ 12,000 $ 15,000