Question

Exercise 1-6 (Algo) Traditional and Contribution Format Income Statements [LO1-6]

Cherokee Inc. is a merchandiser that provided the following information:

		Amount
Number of units sold		10,000
Selling price per unit	$	17
Variable selling expense per unit	$	2
Variable administrative expense per unit	$	3
Total fixed selling expense	$	19,000
Total fixed administrative expense	$	15,000
Beginning merchandise inventory	$	9,000
Ending merchandise inventory	$	23,000
Merchandise purchases	$	89,000

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.

Prepare a contribution format income statement.

Answer 1

Cherokee Inc.
Traditional Income Statement

Sales (10,000 units * $17 per unit)		$170,000
Less : Cost of Goods Sold ($9000 + $89,000 - $23,000)		$(75,000)
Gross profit		$95,000
Less : Selling & Administrative Exps
Variable Administrative Exp (10,000units * $3)	$30,000
Fixed Administrative Exp	$15,000
Variable Selling Exps(10,000 * $2)	$20,000
Fixed Selling Exps	$19,000
Total Selling and Administrative Exps		$(84,000)
NET INCOME		$11,000

Cherokee Inc.
Contribution Format Income Statement

Sales (10,000units * $17 )		$170,000
Less : Variable Expenses
Cost of Goods Sold ($9000+$89000-$23000)	$75,000
Variable Administrative Exps ($10,000 * $3)	$30,000
Variable Selling Exps (10,000units * $2)	$20,000
Total Variable Expenses		$(125,000)
Contribution Margin		$45,000
Less : Fixed Expenses
Fixed Administrative Exps	$15,000
Fixed Selling Exps	$19,000
Total Fixed Exps		$(34,000)
NET INCOME		$11,000