Question

Cherokee Inc. is a merchandiser that provided the following information: A A A 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 $ 30 $ 4 $ 2. $ 40,000 $ 30,000 $ 24,000 $ 44,000 $ 180,000 Required: 1. Prepare a traditional income statement. Cherokee, Inc. Traditional Income Statement Selling and administrative expenses: E Direct materials

Answer 1

Requirement 1:

Cherokee, Inc.
Traditional Income Statement
Sales revenue		$600,000
(Less): Cost of goods sold		$160,000
Gross profit		$440,000
Selling and administrative expenses:
Selling expenses	$120,000
Administrative expenses	$70,000
Total selling and administrative expenses		$190,000
Net income		$250,000

Requirement 2:

Cherokee, Inc.
Contribution Format Income Statement
Sales		$600,000
Less: Variable expenses:
Cost of goods sold	$160,000
Variable selling expense	$80,000
Variable administrative expense	$40,000
Contribution margin		$320,000
Less: Fixed expenses:
Fixed selling expense	$40,000
Fixed administrative expense	$30,000
Net income		$250,000

Calculations:

i	Beginning merchandise inventory	$24,000
	Add: Merchandise purchases	$180,000
	(Less): Ending merchandise inventory	($44,000)
	Cost of goods sold	$160,000
ii	Sales revenue (20,000 x $30)	$600,000
iii	Selling expenses:
	Total Variable selling expense (20,000 x $4)	$80,000
	Total fixed selling expense	$40,000
	Total	$120,000
iv	Administrative expense:
	Total Variable administrative expense (20,000 x $2)	$40,000
	Total fixed administrative expense	$30,000
	Total	$70,000