The owner of Nipawin Shoes Ltd., Lenore Ryerson, is puzzled. Sales in the store are higher than ever but it€™s been less profitable in each of the last three years. Lenore admits that competition has been tough and she held more sales in recent years but the store is still busy and people seem willing to buy. She€™s provided you with Nipawin€™s summarized income statements for the last three years and has asked you to take a look and see if you can find any answers.

Required:
Examine the Nipawin€™s income statements and prepare a report that explains to Lenore why profit is falling despite increasing sales. In your analysis, look at the gross margin and the gross margin percentage. Also consider the comments Lenore made about the business environment her store has been facing and the effect on net income if gross margin in 2017 was the same as in2015.

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Nipawin Shoes Ltd Income Statements For the year ended December 31 2017 $998,250 379,335 618,915 411,778 75,800 131,337 28,894 $102,443 2016 S938,355 328,424 609,931 382,380 76,700 150,851 33,187 $117,664 2015 Sales Cost of goods sold Gross margin Selling, general, and administrative expenses Interest expense Income before taxes Income tax expense Net income $900,821 301,775 599,046 360,328 73,125 165,593 36,430 $129,163