Question

Cherokee Inc. is a merchandiser that provided the following information: Amount 12,000 15 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 <><><><> $ 19,000 $ 16,000 $ 12,000 $ 22,000 $ 86,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.

Answer 1

1. Prepare a traditional income statement. CHEROKEE, INC. Traditional Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expenses $180,000 76,000 104,000 $31,000 52,000 83,000 $21,000 Net operating income

Explanation: Sales: (12,000 units * $15 per unit ) = $180,000 Cost of goods sold: = (Beginning merchandise inventory + Merchandise purchases - Ending merchandise inventory) = ($12,000 + $86,000 - $22,000) = $76,000 Selling expenses: [(12,000 units * $1 per unit) + $19,000] = $31,000 Administrative expenses: [(12,000 units * $3 per unit) + $16,000] = $52,000

$180,000 2. Prepare a contribution format income statement. CHEROKEE, INC. Contribution Format Income Statement Sales Variable expenses: Cost of goods sold $76,000 Selling expenses 12,000 Administrative expenses 36,000 124.000 56,000 Contribution margin Fixed expenses: Selling expenses Administrative expenses $19,000 16,000 35,000 $21,000 Net operating income

Explanation: Sales: (12,000 units * $15 per unit ) = $180,000 Variable expenses: Cost of goods sold: = (Beginning merchandise inventory + Merchandise purchases - Ending merchandise inventory) = ($12,000 + $86,000 - $22,000) = $76,000 Selling expenses: (12,000 units * $1 per unit) = $12,000 Administrative expenses: (12,000 units * $3 per unit) = $36,000