Question

Cherokee Inc. is a merchandiser that provided the following information: Number of units sold 20,000 Selling price per unit $ 30 Variable selling expense per unit $ 4 Variable administrative expense per unit $ 2 Total fixed selling expense $ 40,000 Total fixed administrative expense $ 30,000 Beginning merchandise inventory $ 24,000 Ending merchandise inventory $ 44,000 Merchandise purchases $ 180,000 Required

1) Prepare a traditional income statement.

2 )Prepare a contribution format income statement.

Answer 1

Cherokee Inc
Traditional Income Statement
Sales	20000*30	600000
Cost of goods sold	24000+180000-44000	160000
Gross margin		440000
Selling and administrative expenses:
Selling expenses	(4*20000)+40000	120000
Administrative expenses	(2*20000)+30000	70000
Net operating income		250000

Cherokee Inc
Contribution Format Income Statement
Sales		600000
Variable expenses:
Cost of goods sold	160000
Selling expenses 20000*4	80000
Administrative expenses 2*20000	40000	280000
Contribution margin		320000
Fixed expenses:
Selling expenses	40000
Administrative expenses	30000	70000
Net operating income		250000