Question

Cherokee Inc. is a merchandiser that provided the following information: 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 $ 20,000 $ 16,000 $ 12,000 $ 25,000 $ 86,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement. Complete this question by entering your s in the tabs below. 2 Required 1 Required 2 HELENE 000 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

Answer 1

1) Traditional income statement
Sales (12000*17)		$              204,000.00
Cost of goods sold (12000+86000-25000)		$                73,000.00
Gross profit		$              131,000.00
Less: Selling and administrative expense
Selling expense ((12000*2)+20000)	$          44,000.00
Administrative expense ((12000*1)+16000)	$          28,000.00
Total selling and administrative expense		$                72,000.00
Net operating income		$                59,000.00
2) Contribution format income statement
Sales (12000*17)		$              204,000.00
Variable cost
Cost of goods sold (12000+86000-25000)	$          73,000.00
Selling expense (12000*2)	$          24,000.00
Administrative expense (12000*1)	$          12,000.00
Total variable cost		$              109,000.00
Contribution margin		$                95,000.00
Less: Fixed cost
Selling expense	$          20,000.00
Administrative expense	$          16,000.00
Total fixed cost		$                36,000.00
Net operating income		$                59,000.00