In: Accounting
Cherokee Inc. is a merchandiser that provided the following information:
| Amount | ||
| Number of units sold | 14,000 | |
| Selling price per unit | $ | 17 |
| Variable selling expense per unit | $ | 2 |
| Variable administrative expense per unit | $ | 2 |
| Total fixed selling expense | $ | 21,000 |
| Total fixed administrative expense | $ | 14,000 |
| Beginning merchandise inventory | $ | 8,000 |
| Ending merchandise inventory | $ | 23,000 |
| Merchandise purchases | $ | 87,000 |
Required:
1. Prepare a traditional income statement.
2. Prepare a contribution format income statement.
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| Required 1 : | ||
| Beginning merchandise inventory | 8000 | |
| (+) Merchandise purchases | 87000 | |
| (-) Ending merchandise inventory | 23000 | |
| Cost of goods sold | 72000 | |
| Cherokee, Inc. | ||
| Traditional Income Statement | ||
| Sales ( 14000 * 17 ) | 238000 | |
| (-) Cost of goods sold | 72000 | |
| Gross profit | 166000 | |
| Selling and administrative expenses: | ||
| Total Variable selling expense ( 14000 * 2 ) | 28000 | |
| Total Variable administrative expense ( 14000 * 2 ) | 28000 | |
| Total fixed selling expense | 21000 | |
| Total fixed administrative expense | 14000 | 91000 |
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Net income |
75000 |
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| Required 2 : | ||
| Cherokee, Inc. | ||
| Contribution format income statement | ||
| Sales | 238000 | |
| Variable expense : | ||
| Cost of goods sold | 72000 | |
| Selling expense | 28000 | |
| Administrative expense | 28000 | 128000 |
| Contribution margin | 110000 | |
| Fixed expenses : | ||
| Selling expense | 21000 | |
| Administrative expense | 14000 | 35000 |
| Net income | 75000 | |