Your comparison of the gross margin percent for Jones Drugs for the years 2012 through 2015 indicates a significant decline. This is shown by the following information:

A discussion with Nandini Sharma, 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. Sharma feels strongly that these two factors are the cause of the decline. The following additional information is obtained from independent sources and the client's records as a means of investigating the controller's explanations:

REQUIRED
a. Evaluate the explanation provided by Sharma. Show calculations to support your conclusions.
b. Which specific aspects of the client's financial statements require intensive investigation in this audit?

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2015 2014 2013 2012 Sales $14211 $12 916 $11462 $10 351 92238266 7313 6573 $ 4988 4 650 $ 4149 $ 3 778 (thousands) CGS (thousands) Gross margin Percent 35.1 36.0 36.2 36.5 Jones Drugs (S in thousands) Industry Non Percent for Cost of Cost of of Drugs Sales Sales Sold Sld Products Gross Profit Drug drug Drug Nondrug Goods Goods and Related 2015 $5126 $9085 $3045 $6178 2014 5051 7865 2919 5347 2013 4821 6641 27914522 20124619 5732 2665 3908 32.7 32.9 33.0 33.2