Question

Cherokee Inc. is a merchandiser that provided the following information : Number of units sold Selling price per unit Variable selling expense per unit Variable administrative expense per unit Total fixed selling expense Total fixed administrative expense Beginning merchandise inventory Ending merchandise inventory Merchandise purchases Amount 12,000 17 2 $ 2 $ 20,000 $ 13,000 $ 10,000 $ 23,000 $ 89,000 Required : 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.

Answer 1

1.
Traditional income statement is shown below
Sales (12000*17)		$204,000
Cost of goods sold		$76,000
Gross margin		$128,000
Selling and administrative expenses
Selling expenses	$44,000
Administrative expenses	$37,000
		$81,000
Net operating income		$47,000
Cost of goods sold
Beginning merchandise inventory	$10,000
Add: Merchandise purchases	$89,000
Less: Ending merchandise inventory	$23,000
Cost of goods sold	$76,000
Selling expenses
Variable (12,000*2)	$24,000
Fixed	$20,000
Total selling expenses	$44,000
Administrative expenses
Variable (12,000*2)	$24,000
Fixed	$13,000
Total administrative expenses	$37,000
2
Contribution income statement
Cherokee Inc
Contribution format income statement
Sales (12,000*17)		204000
Variable expenses
Cost of goods sold	$76,000
Selling expenses (12000*2)	24000
Administrative expenses (12000*2)	24000
		$124,000
Contribution margin		$80,000
Fixed expenses
Selling expenses	20000
Administrative expenses	13000
		33000
Net operating income		$47,000