Question

Exercise 2-6 Traditional and Contribution Format Income Statements [LO2-6] 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 Exed selling expense Total fixed administrative expense Beginning merchandise inventory Ending merchandise inventory Merchandise purchases 14 000 18.00 1.00 1.00 19.000 15.000 12.000 24,000 86,000 $ $ Required: 1. Prepare a traditional income statement CHEROKEE, INC Traditional Income Statement Selling and administrative expenses 2. Prepare a contribution format income statement. CHEROKEE, INC. Contribution Format Income Statement Variable expenses: Fixed expenses:

Answer 1

Solution 1:

Cherokee, Inc.
Traditional format Income Statement
Sales (14000*$18)		$2,52,000
Less: Cost Of Goods sold (12000+86000-24000)		$74,000
Gross Profit		$1,78,000
Selling and Administrative Expenses:
Variable Selling Expenses	$14,000
Variable Administrative Expenses	$14,000
Fixed Selling Expenses	$19,000
Fixed Administrative Expenses	$15,000
Total expenses		$62,000
Net Operating Income		$1,16,000

Solution 2:

Cherokee, Inc.
Contribution format Income Statement
Sales (14000*$18)		$2,52,000
Variable Expenses:
Cost Of Goods sold (12000+86000-24000)	$74,000
Variable Selling Expenses	$14,000
Variable Administrative Expenses	$14,000
Total Variable Expenses		$1,02,000
Contribution Margin		$1,50,000
Fixed Expenses:
Fixed Selling Expenses	$19,000
Fixed Administrative Expenses	$15,000
Total Fixed Expenses		$34,000
Net Operating Income		$1,16,000