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 10,000 15 1 3 $ 22,000 $ 16,000 $ 11,000 $ 24,000 $ 86,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.

Answer 1

Answer

Cost of Goods Sold = $ 11000 + $ 86000 - $ 24000

Variable expenses = 10000 units sold x Variable cost per unit

• [1]

Cherokee Inc
Traditional Income Statement
Sales		$150,000
Cost of Goods Sold		$73,000
Gross Margin		$77,000
Selling & Administrative expense:
Administrative expense	$46,000
Selling expense	$32,000
		$78,000
Net Operating Income (Loss)		($1,000)

• [2]

Cherokee Inc
Contribution format income statement
Sales		$150,000
Variable expenses:
Cost of Goods Sold	$73,000
Selling Expenses	$10,000
Administrative expenses	$30,000
		$113,000
Contribution margin		$37,000
Fixed Expenses:
Selling Expenses	$22,000
Administrative expenses	$16,000
		$38,000
Net Operating Income (Loss)		($1,000)