London Company provided the following income statements for its first three years of operation:

Year 1

Year 2

Year 3

Net sales

975,000

1,150,000

1,280,000

Less: cost of goods sold

(676,000)

(910,000)

(945,000)

Gross margin

299,000

240,000

335,000

Less:

Operating expenses

(185,000)

(215,000)

(235,000)

Income taxes

(45,600)

(10,000)

(40,000)

Net income

68,400

15,000

60,000

13. Refer to Figure 16-6. Prepare a horizontal analysis using year 1 as the base year. Explain if the results are favorable or unfavorable. Use the percentage change method.