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Milavec Company Income Statement and Statement of Retained Earnings for the Years Ending December 31 Year 4. Year 3. Percentage Difference Sales 900,000 800,000 +12.5%

Milavec Company Income Statement and Statement of Retained Earnings for the Years Ending December 31 Year 4. Year 3. Percentage Difference Sales 900,000 800,000 +12.5% Cost of goods sold. 610,000 480,000. +27.1% Gross margin 290,000. 320,000. -9.4 Operating expenses 248,000 280,000. -11.4 Income before taxes 42,000. 40,000. +5.0 Income taxes 17,000. 18,000. -5.6 Net income 25,000. 22,000. +13.6 The following information was drawn from the records of Milan Company Year 2. Year 1 Revenue. 120,000. 100,000 cost of goods sold. (78,000). (60,000) Gross margin. 42,000. 40,000 Operating Expenses (24,000) (20,000) Net Income. 18,000. 20,000 Vertical analysis suggests that the most likely explanation as to why net income decreased is?

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