Question

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

	Amount
Number of units sold		11,000
Selling price per unit	$	17
Variable selling expense per unit	$	1
Variable administrative expense per unit	$	3
Total fixed selling expense	$	21,000
Total fixed administrative expense	$	15,000
Beginning merchandise inventory	$	9,000
Ending merchandise inventory	$	26,000
Merchandise purchases	$	89,000

Required:

1. Prepare a traditional income statement.

2. Prepare a contribution format income statement.

Answer 1

Solution

CHEROKEE INC.
Traditional income statement
Sales		$      187,000.00
Cost of goods sold		$        72,000.00
Gross profit		$      115,000.00
Selling and administrative expenses
Selling expenses	$        32,000.00
Administrative expenses	$        48,000.00
Total selling and administrative cost		$        80,000.00
Net operating income		$        35,000.00

.

CHEROKEE INC.
Contribution margin income statement
for the month of June
Sales revenue		$      187,000.00
Less: Variable costs
Cost of goods sold	$        72,000.00*
Selling expenses	$        11,000.00
Administrative expenses	$        33,000.00
Total Variable cost		$      116,000.00
Contribution margin		$        71,000.00
Fixed costs
Selling expenses	$        21,000.00
Administrative expenses	$        15,000.00
Total Fixed cost		$        36,000.00
Operating profit		$        35,000.00

*9000+89000-26000