Gross Profit and Sales Mix

After analyzing Coyote Canyon Outfitter’s Income statement you notice the sales are 20% higher than last year. You also notice the net income is 15% higher. Also, according to your calculations the gross profit has declined from 60% to 50% and Research and Development has increased by 15%. Please comment on these observations. Be specific.

  • Is an increase in sales always good?
  • Why might sales increase 20% but net income increase only 15%?
  • What might cause the gross profit percent to decline?
  • How would the increase in R&D affect the net income?