To increase profits, corporations must increase sales or decrease costs. They share information about both in their annual reports. PETsMART’s annual report has a section labeled Management’s Discussion and Analysis of Financial Condition and Results of Operations. It includes a comparison of net sales and gross profit for the current year and previous year. Here is how gross profit is calculated:

Sales
Cost of Sales  Gross Profit

INSTRUCTIONS

Refer to the Fiscal 2003 Compared to Fiscal 2002 section of PETsMART’s annual report in Appendix F to answer these questions.

1. What items do you think would be included in PETsMART’s cost of sales?

2. What factors contributed to a higher gross profit in 2003 versus 2002?