The following income statements were drawn from the annual reports of Hall Company:

The president’s message in the company’s annual report stated that the company had implemented a strat¬ egy to increase market share by spending more on advertising. The president indicated that prices held steady and sales grew as expected. Write a memo indicating whether you agree with the president’s state¬ ments. How has the strategy affected profitability? Support your answer by measuring growth in sales and selling expenses. Also prepare common size income statements and make appropriate references to the differences between 2005 and 2006.

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Net Sales Cost of Goods Sold Gross Margin Less: Operating Expense Selling and Administrative Expenses Net Income 2005* 2006* $302,900 $370,500 (217,400) (264,700) 85,500 105,800 (40,800) (58,210) $ 44,700 $ 47,590