Question

Cherokee Inc. is a merchandiser that provided the following information: Number of units sold 10,000 Selling price per unit $ 17.00 Variable selling expense per unit $ 1.00 Variable administrative expense per unit $ 1.50 Total fixed selling expense $ 19,000 Total fixed administrative expense $ 13,000 Beginning merchandise inventory $ 11,000 Ending merchandise inventory $ 24,000 Merchandise purchases $ 86,000 Required:

1. Prepare a traditional income statement.

2. Prepare a contribution format income statement.

Answer 1

Cost of goods sold = 11000+86000-24000 = 73000

1) Traditional income statement

Sales		170000
Cost of goods sold		73000
Gross profit		97000
selling and administrative expense
Selling expense (10000+19000)	29000
Administrative expense (15000+13000)	28000
Total selling and administrative expense		57000
Income from operation		40000

2) contribution format income statement

Sales		170000
variable expense
Cost of goods sold	73000
Variable selling expense	10000
variable administrative expense	15000
Total variable expense		98000
contribution margin		72000
Fixed expense
Fixed selling expense	19000
Fixed administrative expense	13000
Total fixed expense		32000
Income from operation		40000