Question

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

Number of units sold		11,000
Selling price per unit	$	17
Variable selling expense per unit	$	1
Variable administrative expense per unit	$	2
Total fixed selling expense	$	21,000
Total fixed administrative expense	$	14,000
Beginning merchandise inventory	$	11,000
Ending merchandise inventory	$	23,000
Merchandise purchases	$	87,000

Required:
1.	Prepare a traditional income statement.

        

2.	Prepare a contribution format income statement.

     

Answer 1

Cherokee Inc
Traditional Income Statement
Sales		187000
Cost of goods sold		75000
Gross margin		112000
Selling and administrative expenses:
Selling expenses 21000+1*11000	32000
Administrative expenses 2*11000+14000	36000	68000
Net operating income		44000

Cherokee Inc
Contribution Format Income Statement
Sales		187000
Variable expenses:
Cost of goods sold	75000
Selling expenses 1*11000	11000
Administrative expenses 2*11000	22000	108000
Contribution margin		79000
Fixed expenses:
Selling expenses	21000
Administrative expenses	14000	35000
Net operating income		44000

Workings

Cost of goods sold
Beginning merchandise inventory	11000
Add   Merchandise purchases	87000
Less Ending merchandise inventory	23000
Cost of goods sold	75000