Question

Cherokee Inc. is a merchandiser that provided the following information: Amount 12,000 17 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 inventony Merchandise purchases s s 20,000 S 14,000 $ 11,000 $ 25,000 s 89,000 Required: 1. Prepare a traditional income statement 2 Prepare a contribution format income statement

Answer 1

1. Traditional Income Statement:

Cherokee Inc
Traditional Income Statement
	Amount ($)	Amount ($)
Sales (12,000*17)		204,000
less: Cost of goods sold
Opening Inventory	11,000
Add: Purchases	89,000
Less: Closing Inventory	25,000	75,000
Gross profit		129,000
Selling and administrative exp
Selling exp (12,000*1 + 20,000)	32,000
Administrative exp (12,000*2+ 14,000)	38000	70,000
Operating Income		59,000

2. Contribution Format Income Statement

Cherokee Inc
Contribution Format Income Statement
	Amount ($)	Amount ($)
Sales (12,000*17)		204,000
Less: variable expenses
Cost of goods sold	75,000
Selling exp (12,000*1)	12,000
Administrative exp (12,000*2)	24,000	111,000
Contribution Margin		93,000
Less: Fixed Expenses
Selling exp (20,000)	20,000
Administrative exp (14,000)	14,000	34,000
Operating Income		59,000