Solution-Return on sales for long pond is lower in 2008

Comparative income statements for Long Pond Company for 2008 and 2007 follow.

	2008	2007
Sales	$800,000	$450,000
Cost of goods sold	510,000	240,000
Gross profit	$290,000	$210,000
Selling and general expenses	80,000	60,000
Operating income	$210,000	$150,000
Interest expense	40,000	30,000
Income before income taxes	$170,000	$120,000
Income taxes	51,000	36,000
Net income	$119,000	$ 84,000

1. Prepare common-size income statements for Long Pond Company for 2008 and 2007.

2. Return on sales for Long Pond is lower in 2008 than in 2007. What expense or expenses are causing this lower profitability?

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