Question

In: Accounting

Cherokee Inc. is a merchandiser that provided the following information: Amount Number of units sold 14,000...

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.

Cherokee, Inc.
Traditional Income Statement
     
Selling and administrative expenses:
Cherokee, Inc.
Contribution Format Income Statement
Variable expenses:
Fixed expenses:

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Solutions

Expert Solution

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

Net income

75000

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

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