Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the gross margin for 2008 and 2009.

1.) What does the change in the operating margin between these two years imply about the company?

A) The efficiency of Xenon Manufacturing has significantly risen between 2008 and 2009.

B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2008 and 2009.

C) The efficiency of Xenon Manufacturing has significantly fallen between 2008 and 2009.

D) The leverage of Xenon Manufacturing fell slightly between 2008 and 2009.

2.) What does the change in the gross margin between these two years imply about the company?

A) The efficiency of Xenon Manufacturing has significantly risen between 2008 and 2009.

B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2008 and 2009.

C) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them fell between 2008 and 2009.

D) The leverage of Xenon Manufacturing fell slightly between 2008 and 2009.

Income Statement for Xenon Manufacturing: 2008 2009 Total sales 202 212 Cost of sales -148 -172 Gross Profit 54 40 Selling, general, and administrative expenses -22 -20 Research and development -8 -7 Depreciation and amortization -4 -3 Other income 4 6 Earnings before interest and taxes (EBIT) 24 16 Interest income (expense). -7 -4 Pretax income 14 12 Taxes -4 -3 Net Income 10 9