Common Size Income Statements
Prepare common size income statements for Pellum Company, a sole proprietorship, for the two years shown below by converting the dollar amounts into percentages. For each year, sales will appear as 100 percent and other items will be expressed as a percentage of sales. (Income taxes are not involved as the business is .lot incorporated.) Comment on whetherthe changes from 2010 to 2011 are favorable or unfavorable.
| 2011 | 2010 |
Sales | $500,000 | $400,000 |
Cost of goods sold | 330,000 | 268,000 |
Gross profit | $170,000 | $132,000 |
Operating expenses | 130,000 | 116,000 |
Net income | $ 40,000 | $ 16,000 |
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