Sam Hernandez has noticed a marked decline in his gross profit percentage from last year to this year, from 60% down to 40%. As his business manager, Sam has asked you why this occurred, and how to rectify the situation. After all, sales have not really changed, so what has happened to cause this situation?

For your initial post, share your immediate thoughts and concerns about why this situation may have occurred. With a decrease in gross profit percentage this large, are there concerns about the stability and future viability of the business continuing as a going concern?