Using Common Size Statements}

The following statements of earnings and vertical analysis data are available for Sussman Audio Products:

\section*{Required:}
1. CONCEPTUAL CONNECTION Suggest why net income increased from \(\$ 92,500\) to \(\$ 414,900\).
2. CONCEPTUAL CONNECTION Explain what could cause sales to increase while the gross margin percentage decreases.

Problem

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Sussman Audio Products Consolidated Statements of Earnings (in thousands) Year Ended June 30, 2017 2018 2016 Amount % Amount % Amount % Sales $4,122.0 100.0 $3,566.0 100.0 $2,965.0 100.0 Other income, net 39.7 1.0 36.7 1.0 21.3 0.7 Total revenues 4,161.7 101.0 3,602.7 101.0 2,986.3 100.7 Costs and expenses: Cost of goods sold Selling and administrative Interest 1,893.6 45.9 1,610.3 45.2 1,310.8 44.2 1,610.3 39.1 1,603.6 45.0 1,505.3 50.8 61.4. 1.5 69.7 2.0 63.2 2.1 Total costs and expenses 3,565.3 86.5 3,283.6 92.2 2,879.3 97.1 Income before income taxes 596.4 14.5 319.1 8.9* 107.0 3.6 Income tax expense 181.5 4.4 109.6 3.1 14.5 0.5 Net income $ 414.9 10.1 209.5 5.9* $ 92.5 3.1