Question

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

 Required:

 1. Prepare a traditional income statement.

 2. Prepare a contribution format income statement.

Answer 1

	Cherokee, Inc.
	Traditional Income statement
	Sales (10,000 units X $17)		$   1,70,000
Less:	Cost of goods sold		$       76,000
	Gross Profit		$       94,000
Less:	Selling and administrative expenses
	Selling Expense [(10,000 units X $2) + $19,000]	$         39,000
	Advertising expense [(10,000 units X $1) + $15,000]	$         25,000
			$       64,000
	Net operating Income		$       30,000

Workings:
Cost of goods sold =	Beginning inventory + Purchases - Ending Inventory
=	$10,000 + $89,000 - $23,000
=	$                                                                                           76,000

	Cherokee, Inc.
	Contribution Income statement
	Sales (10,000 units X $17)		$   1,70,000
Less:	Variable cost
	Cost of goods sold	$         76,000
	Shipping Expense (10,000 units X $2)	$         20,000
	Administrative expenses (10,000 units X $1)	$         10,000
	Total Variable cost		$   1,06,000
	Contribution margin		$       64,000
Less:	Fixed expenses
	Selling Expense	$         19,000
	Advertising expense	$         15,000
			$       34,000
	Net operating Income		$       30,000

Workings:
Cost of goods sold =	Beginning inventory + Purchases - Ending Inventory
=	$10,000 + $89,000 - $23,000
=	$                                                                                           76,000

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