Question

Exercise 2-6 Traditional and Contribution Format Income Statements [LO2-6] Cherokee Inc. is a merchandiser that provided the following information: 20,000 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 40,000 $ 30,000 $ 24,000 $ 44,000 $ 180,000 Required: 1. Prepare a traditional income statement. Answer is not complete. $ 600,000 160,000 440,000 Cherokee, Inc. Traditional Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses 120,000 Administrative expenses 70,000 Administrative expenses 40,000 X Fixed manufacturing overhead Net operating loss 230,000

Answer 1

Cherokee, Inc Traditional Income Statement sales Revneue = 20000*30 1600000 Cost of Goods Sold 160000 Gross Margin 440000 selling and Administrative Expenses Selling Expenses Selling Expenses (40000*4)+40000 120000 Administrative Expenses (30000*2)+30000 70000 Total Selling and Administrative Expenses 190000 Net operating income 250000 Beginning inventoy Add: Purchases Less: Ending invenotry Cost of Goods sold 24000 180000 44000 160000

600000 Cherokee, Inc Contribution Formate Income Statement sales Revneue Varaible Expenses Cost of Goods Sold 160000 Selling Expenses 80000 Administrative Expenses 40000 Total Variable Expenses Contribution Margin Fixed Expenses Selling Expenses 40000 Administrative Expenses 30000 Total Fixed Cost Net operating Income 280000 320000 70000 250000