BPOs management believes the company has been successful at increasing sales since 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 represent industry averages. The following income statements are available for BPOs first three years of operation:

Year 3 Year 2 Year 1

Sales R125,000 R110,000 R100,000

Cost of goods sold R62,000 R49,000 R40,000

Gross profit R63,000 R61,000 R60,000

Operating expenses R53,000 R49,000 R45,000

Net income R10,000 R12,000 R15,000

Question: Prepare a common-size comparative income statement for the three years. Thereafter explain why net income has decreased while sales have increased.

Prepare an income statement for year 4. Sales volume in units is expected to increase by 10% and costs and operating expenses are expected to increase by 8%. Do you think BP should raise its prices or maintain the same selling prices? Explain your answer