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 not incorporated.) Comment on whether the changes from 2006 to 2007 are favorable or unfavorable.

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2007 2006 $500,000 $400,000 Sales. Cost of goods sold. Gross profit Operating expenses. Net income... 330,000 268,000 $170,000 $132,000 130.000 $ 40,000 116,000 $ 16,000