The finance director, Randy House, has been with the firm since its formation and owns an equity stake. The diversification into e-books has presented Randy with a challenge as there is now a need to understand the costs and profitability of two different market channels. There is also the added complication that whilst 28,350 e-books were sold through University bookstores last year, there were also 12,000 e-books sold directly through AAP's own website. At the most recent management meeting the directors were reviewing the financial performance for that last accounting year and in particular were trying to interpret the income statement segmented by market channel (Table 1). Table 1 - AAP - Income statement for the last year. Paperback E-book Total Average price $160 $75 $121* Number of books sold 48,200 40,350 88,550 S S Sales revenue (list price) 7,712,000 3,026,250 10,738,250 Discounts 3,172,800 169,875 3,342,675 Net sales revenue 4,539,200 2,856,375 7,395,575 Direct costs: Technological research 0 453,937 453,937 Acquisition of titles 231,360 90,788 322,148 Editing and design 771,200 302,625 1,073,825 Printing and binding 925,440 925,440 E-book digitisation 907,875 907,875 Direct cost of books sold 1,928,000 1,755,225 3,683,225 Gross profit 2,611,200 1,101,150 3,712,350 Gross margin 33.9% 36.4% 34.6% SD and CS expenses: Hard copy distribution 402,000 402,000 Other SD&CS expenses 1,537,085 603,165 2,140,250 Total SD&CS expenses 1,939,085 603,165 2,542,250 Operating profit 672,115 497,985 1,170,100 Net margin 8.7% 16.5% 10.9% * The overall average price is rounded down to $121 from $121.27