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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 $ 17 $ 1 $ 3 $ 19,000 $ 15,000 $ 10,000 $ 23,000 $ 88,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare a traditional income statement. Cherokee, Inc. Traditional Income Statement Selling and administrative expenses: 0 < Requlred Required 2

Answer 1

1.

Cost of goods sold = Beginning inventory + Purchases- Ending inventory

= 10,000+88,000-23,000

= $75,000

Cherokee, Inc.
Traditional Income Statement
Sales (12,000 x 17)		204,000
Cost of goods sold		-75,000
Gross Profit		129,000
Selling and administrative expenses:
Selling expenses ( 12,000 x 1 + 19,000)	31,000
Administrative expenses ( 12,000 x 2 + 15,000)	39,000
Total selling and administrative expenses		-70,000
Net Operating Income		$59,000

2.

Cherokee, Inc.
Contribution Format Income Statement
Sales (12,000 x 17)		204,000
Variable Expenses:
Cost of goods sold	75,000
Selling expenses (12,000 x 1)	12,000
Administrative expenses (12,000 x 2)	24,000
Total variable expenses		-111,000
Contribution margin		93,000
Selling expenses	19,000
Administrative expenses	15,000
Total fixed expenses		-34,000
Net Operating Income		$59,000

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