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Horizontal Analysis of the Income Statement

Income statement data for Winthrop Company for two recent years ended December 31 are as follows:

	Current Year			Previous Year
Sales	$738,000			$600,000
Cost of merchandise sold	605,000			500,000
Gross profit	$133,000			$100,000
Selling expenses	$37,290			$33,000
Administrative expenses	33,880			28,000
Total operating expenses	$71,170			$61,000
Income before income tax expense	$61,830			$39,000
Income tax expenses	24,700			15,600
Net income	$37,130			$23,400

b. The net income for Winthrop Company increased between years. This increase was the combined result of an

increasedecrease

in sales and

higherlower

percentage

increasedecrease

in cost of merchandise sold. The cost of merchandise sold increased at a

slowerfaster

rate than the increase in sales, thus causing the percentage increase in gross profit to be

greaterless

than the percentage increase in sales.