Your comparison of the gross margin percent for Jones Drugs for the years 2016 through 2019 indicates a significant decline. This is shown by the following information: 

A discussion with Tanvi Anand, 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. Anand 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 Anand. 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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2019 2018 2017 2016 Sales (thousands) $ 14,211 $ 12,916 $ 11,462 $ 10,351 CGS (thousands) 9,223 8,266 7,313 6,573 Gross margin $ 4,988 $ 4,650 $ 4,149 $ 3,778 Percent 35.1 36.0 36.2 36.5