A vertical analysis of the income statement of Ridge Ltd was prepared for 2016 and 2015 as follows.

Ridge Ltd

Income Statement

Vertical Analysis

2016

2015

$

%

$

%

Sales

1 500 000

100.0%

1 350 000

100.0%

Cost of sales

745 000

49.7%

738 000

54.7%

Gross profit

755 000

50.3%

612 000

45.3%

Selling expenses

123 000

8.2%

105 000

7.8%

Administrative expenses

92 000

6.1%

81 000

6.0%

Total operating expenses

215 000

14.3%

186 000

13.8%

Profit before income tax

540 000

36.0%

426 000

31.6%

Income tax expense

162 000

10.8%

127 800

9.5%

Profit

378 000

25.2%

298 200

22.1%

A friend, who wants to invest in Ridge LTD asked for your opinion regarding the comparative income statement. As a result of your analysis your opinion is:

a.Profit for the period increased by 25.2%.

b.Gross profit increased by 5% because of the increase in sales.

c.Profit increased because cost of sales and all expenses decreased.

d.Profit for the period as a percentage of sales increased by 26.76% compared with 2015.

e.Profit for the period as a percentage of sales increased by 3.1% mainly because of the reduction of cost of sales.