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1 More Info - X fort the cli- h the Johnson Drugs ($ in thousands) Industry Gross Profit Percent for Retailers of Drugs and Related Products WC les Nondrug Sales Ondr 2019 Drug Sales 4,913 4,805 $ 32.7 8,887 7,595 6,376 5,656 Drug Cost of Goods Sold $ 2,815 2,672 2,529 2,480 Nondrug Cost of Goods Sold $ 5,990 5,119 4,304 3,829 2018 32.8 33.0 4,524 2017 2016 4,444 33.2 Print Done P8-31 (similar to) Your comparison of the gross margin percent for Johnson Drugs for the years 2016 through 2019 indicates a significant decline. This is shown by the following information: (Click the icon to view the data and additional discussion with the controller.) the following additional information is obtained from independent sources a means of investigating the controller's explanations: (Click the icon to view the additional information.) Read the requirements. Requirement a. Evaluate the explanation provided by Avell. Show calculations to support your conclusions. Begin by computing the gross margin percentage for drug and nondrug sales for 2019 through 2016. (Round your answers to the nearest tenth percent, XX.X%.) Gross margin % - Gross margin % - Year Drug sales Nondrug sales Requirements - X 2019 2018 a. Evaluate the explanation provided by Avell. Show calculations to support your 2017 conclusions. 2016 b. Which specific aspects of the client's financial statements require intensive investigation in this audit? Print Done Enter any number in the edit fields and then click Check All Joh gi 0 Data Table - Nepend X 2016 Sales (thousands) $ 2019 13,800 8,929 $ 2018 12,400 7,924 $ 2017 10,900 6,921 $ 10,100 6,383 CGS (thousands) Gross margin Percent $ 4,476 $ 3,979 $ 3,717 4,871 35.3 36.1 36.5 36.8 A discussion with Margie Avell, the controller, brings to light two possible explanations. She informs you that the industry gross profit percent in the retail drug industry declined fairly steadily for three years, which accounts for part of the decline. A second factor was the declining percent of the total volume resulting from the pharmacy part of the business. The pharmacy sales represent the most profitable portion of the business, yet the competition from discount drugstores prevents it from expanding as fast as the nondrug items such as magazines, candy, and many other items sold. Avell feels strongly that these two factors are the cause of the decline. Print Done