Question

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

		Amount
Number of units sold		13,000
Selling price per unit	$	15
Variable selling expense per unit	$	1
Variable administrative expense per unit	$	1
Total fixed selling expense	$	18,000
Total fixed administrative expense	$	16,000
Beginning merchandise inventory	$	9,000
Ending merchandise inventory	$	22,000
Merchandise purchases	$	85,000

Required:

1. Prepare a traditional income statement.

2. Prepare a contribution format income statement.

Answer 1

	Traditional Income Statement:					Merchandise Consumed:
	Sales Revenue (15*13000)	1,95,000				Beginning Inventory	9,000
	Less: Expenses					Add: Merchandise Purchase	85,000
	Merchandise Consumed	72,000.0					94,000
	Variable Selling Expense(1*13000)	13,000.0				Less: Ending Merchandise	22,000
	Variable Admin Expense(1*13000)	13,000.0				Merchandise Consumed	72,000
	Fixed Selling Expense	18,000.0
	Fixed Admin Expense	16,000.0
	Net Operating Income	63,000.0
	Contribution Format Income Statement:
	Sales Revenue (15*13000)	1,95,000
	Less: Cost of Goods Sold
	Merchandise Consumed	72,000.0
	Gross Contribution	1,23,000.0
	Variable Selling Expense(1*13000)	13,000.0
	Variable Admin Expense(1*13000)	13,000.0
	Net Contribution	97,000.0
	Less: Period Expense
	Fixed Selling Expense	18,000.0
	Fixed Admin Expense	16,000.0
	Net Operating Income	63,000.0