Question

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

		Amount
Number of units sold		13,000
Selling price per unit	$	16
Variable selling expense per unit	$	1
Variable administrative expense per unit	$	1
Total fixed selling expense	$	19,000
Total fixed administrative expense	$	13,000
Beginning merchandise inventory	$	12,000
Ending merchandise inventory	$	25,000
Merchandise purchases	$	89,000

Required:

1. Prepare a traditional income statement.

2. Prepare a contribution format income statement.

Answer 1

Cherokee Inc						Cherokee Inc
Income Statement						Income Statement
Sales		13000*16		$208,000.00		Sales		13000*16		$208,000.00
Less: Cost Of Goods Sold*				$76,000.00		Less: Variable Expenses
Gross Margin				$132,000.00			Variable Purchase Cost*			$76,000.00
Less : Operating expenses							Variable Selling Expenses			$13,000.00
	Selling Expense**			$32,000.00			Variable Admin. Expenses			$13,000.00
	Administrative Expense***			$26,000.00		Contribution Margin				$106,000.00
						Less: Fixed Expenses
Net Income				$74,000.00			Fixed Selling Expense			$19,000.00
							Fixed Admin. Expense			$13,000.00
						Net Income				$74,000.00
*COGS
Beginning Inventory		$12,000.00
Add : Purchases		$89,000.00				*Variable Purchase Cost
Less: Sales		$25,000.00				Beginning Inventory		$12,000.00
						Add : Purchases		$89,000.00
	COGS	$76,000.00				Less: Sales		$25,000.00
**Selling Expense						Variable Purchase Cost		$76,000.00
Variable Selling Expenses
(1 *13000)		$13,000.00
Fixed Selling Expense		$19,000.00
	TOTAL	$32,000.00
***Administrative Expense
Variable Administrative Expenses
(1 *13000)		$13,000.00
Fixed Admin. Expense		$13,000.00
	TOTAL	$26,000.00

Thank You

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