Common-Size Statements. Dan Schulte, president of Health Products Company, says that large dollar amounts on financial statements are confusing. However, he finds that percentage relationships are helpful. For example, he expects cost of goods sold to be 60 percent of net sales, operating expenses to be 20 percent, income taxes to be 7 percent, and net income to be about 10 percent. Operating results in summary form for 1997 and 1998 are as follows:

\section*{Required:}
1. Prepare percentage composition statements for both years.
2. Prepare a base-year comparison using 1997 as the base year.
3. What trends exist? Were the president's expectations realized? Should he worry about certain specific trends?

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1997 1998 Net sales... Cost of goods sold Gross profit.. Operating expenses Operating income. Income taxes. Net income. $15,140,000 9,175,000 $ 5,965,000 3,421,000 $ 2,544,000 1,036,000 $ 1,508,000 $18,534,000 11,523,000 $ 7,011,000 3,906,000 $ 3,105,000 1,233,000 $ 1,872,000