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 12,000 16 1 2 $ 18,000 $ 13,000 $ 10,000 $ 23,000 $ 87,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.

Answer 1

1]	TRADITIONAL INCOME STATEMENT
	Sales [12000*16]		$    1,92,000
	Less:-Cost of goods sold [10000+87000-23000]		$       74,000
	Gross margin		$    1,18,000
	Selling and administrative expenses:
	Selling expenses [18000+12000*1]	$         30,000
	Administrative expenses [13000+12000*1]	$         25,000
	Total selling and administrative expenses		$     55,000
	Net operating income		$    63,000
2]	CONTRIBUTION FORMAT INCOME STATEMENT
	Sales		$    1,92,000
	Variable expenses:
	Cost of goods sold	$         74,000
	Administrative expenses	$         12,000
	Selling expenses	$         12,000
	Total variable expenses		$    98,000
	Contribution margin		$    94,000
	Fixed expenses:
	Administrative expenses	$         13,000
	Selling expenses	$         18,000
	Total fixed expenses		$       31,000
	Net operating income		$    63,000