Question

Cherokee Inc is a merchandiser that provided the following information: Amount 12,000 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 $ $ 22,000 $ 16,000 $ 10,000 $ 26,000 $ 85,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.

Answer 1

Answer:
1
Cherokee, Inc
Traditional Income Statement:	$	$	Workings
Sales		$     192,000	12000*16
- Cost of goods sold		$       69,000	10000+85000-26000
Gross margin		$     123,000	192000-69000
- Selling and administrative expenses:
Variable selling expenses	$     24,000		12000*2
Variable administrative expenses	$     12,000		12000*1
Fixed selling expenses	$     22,000
Fixed administrative expenses	$     16,000	$       74,000	24000+12000+22000+16000
Net operating income		$       49,000	123000-74000
2
Cherokee, Inc.
Contribution Format Income Statement:	$	$	Workings
Sales		$     192,000
- Variable expenses:
Cost of goods sold	$     69,000
Variable selling expenses	$     24,000
Variable administrative expenses	$     12,000	$     105,000	69000+24000+12000
Contribution margin		$       87,000	192000-105000
- Fixed expenses:
Fixed selling expenses	$     22,000
Fixed administrative expenses	$     16,000	$       38,000	22000+16000
Net operating income		$       49,000	87000-38000