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 11,000 $ 18 $ 1 $ 1 $ 19,000 $ 14,000 $ 9,000 $ 26,000 $ 90,000 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

Answer 1

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1	Cherokee, Inc.
	Traditional Income statement
	Sales (11000 units X $18)		$   1,98,000
Less:	Cost of goods sold		$       73,000
	Gross Profit		$   1,25,000
Less:	Selling and administrative expenses
	Selling Expense [(11000 units X $1) + $19000]	$         30,000
	Advertising expense [(11000 units X $1) + $14000]	$         25,000
			$       55,000
	Net operating Income		$       70,000
	Workings:
	Cost of goods sold =	Beginning inventory + Purchases - Ending Inventory
	=	$9000 + $90000 - $26000
	=	$         73,000
2	Cherokee, Inc.
	Contribution Income statement
	Sales (11000 units X $18)		$   1,98,000
Less:	Variable cost
	Cost of goods sold	$         73,000
	Selling Expense (11000 units X $1)	$         11,000
	Advertising expense (11000 units X $1)	$         11,000
	Total Variable cost		$       95,000
	Contribution margin		$   1,03,000
Less:	Fixed expenses
	Selling Expense	$         19,000
	Advertising expense	$         14,000
			$       33,000
	Net operating Income		$       70,000
	Workings:
	Cost of goods sold =	Beginning inventory + Purchases - Ending Inventory
	=	$9000 + $90000 - $26000
	=	$         73,000