Tarbox Manufacturing Company makes sheet metal products for heating and air conditioning installations. For the past several years, the company's income has been declining. Its statements of cost of goods manufactured and income statements for the last two years are on the next two pages. You have been asked to comment on why the ratios for Tarbox's profitability have deteriorated.

1. In preparing your comments, compute the following ratios for each year:
a. Ratios of cost of direct materials used to total manufacturing costs, direct labor to total manufacturing costs, and total overhead to total manufacturing costs. (Round to one decimal place.)
b. Ratios of sales salaries and commission expense, advertising expense, other selling expenses, administrative expenses, and total selling and administrative expenses to sales. (Round to one decimal place.)
c. Ratios of gross margin to sales and net income to sales. (Round to one decimalplace.)

2. From your evaluation of the ratios computed in 1, state the probable causes of the decline in net income. 

3. What other factors or ratios do you believe should be considered in determining the cause of the company’s decreased income?

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Tarbox Manufacturing Company Statements of Cost of Goods Manufactured For the Years Ended December 31 This Year Last Year Direct materials used Materials inventory beginning Direct materials purchased $ 91,240 987640 $1,078,880 95,020 93,560 959,940 $1,053,500 91,240 (net) Cost of direct materials available for use Less materials inventory ending Cost of direct $ 962,260 579,720 materials used $ 983,860 571.410 Direct labor Overhead Indirect labor S 182,660 34,990 22.430 125,330 75,730 41,740 S 171,980 32,550 18,530 120,050 72,720 36,280 Power Insurance Supervision Other overhead costs Total overhead Add work in process Total cost of work in Less work in process Total manufacturing costs $2,038,150 148,875 $2,187,025 146,750 $2,040,275 $1,994,090 52,275 $2,146,365 148,875 $1,997490 inventory, beginning process during the period inventory, ending Cost of goods manufactured Tarbox Manufacturing Company Income Statements For the Years Ended December 31 This Year $2,942,960 Last Year $3,096,220 Cost of goods sold Finished goods inventory, beginning Cost of goods 1 Cost of goods available for sale Less finished goods inventory, ending Total cost of goods solo $ 142,640 2,040,275 $2,182915 186,630 $184,820 1997 490 $ 2,182,31o 142,640 1996 285 946,675 20396O $1,056,550 Gross margin Selling and administrative expenses commission expense Other selling expenses Sales salaries and S 394,840 S 329,480 194.290 72,930 195,530 Advertising expense 16,110 82,680 242 Total selling and 792,230 $ 264,320 administrative expenses 836 230 5 110,445 Income from operations Other revenues and expenses Interest expense Income before income 54,160 56,815 S 56,285 19,137 S 37,148 $ 207,505 87,586 119,919 Income taxes expense Net income