Question

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

Solution

CHEROKEE INC.
Traditional income statement
Sales		$      600,000.00
Cost of goods sold		$      160,000.00
Gross profit		$      440,000.00
Selling and administrative expenses
Selling expenses	$              120,000.00
Administrative expenses	$                 70,000.00
Total selling and administrative cost		$      190,000.00
Net operating income		$      250,000.00

.

CHEROKEE INC.
Contribution margin income statement
for the month of June
Sales revenue		$      600,000.00
Less: Variable costs
Cost of goods sold	$              160,000.00
Selling expenses	$                 80,000.00
Administrative expenses	$                 40,000.00
Total Variable cost		$      280,000.00
Contribution margin		$      320,000.00
Fixed costs
Selling expenses	$                 40,000.00
Administrative expenses	$                 30,000.00
Total Fixed cost		$        70,000.00
Operating profit		$      250,000.00