Problem

Common Size Income StatementsPrepare common size income statements for Pellum Company, a s...

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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