Question

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

Number of units sold 10,000 Selling price per unit $ 17.00 Variable selling expense per unit $ 2.00 Variable administrative expense per unit $ 1.50 Total fixed selling expense $ 22,000 Total fixed administrative expense $ 15,000 Beginning merchandise inventory $ 11,000 Ending merchandise inventory $ 22,000 Merchandise purchases $ 86,000 

Required:

1. Prepare a traditional income statement.

2. Prepare a contribution format income statement

Answer 1

1. Prepare a traditional income statement.

Sales		170000
Less; Cost of goods sold
Beginning merchandise inventory	11000
Purchase	86000
Less: Ending merchandise inventory	-22000
Cost of goods sold		75000
Gross profit		95000
Less; Selling and administrative expense
Selling expense (20000+22000)	42000
Administrative expense (15000+15000)	30000
Total selling and administrative expense		72000
Net operating income		23000

2. Prepare a contribution format income statement

Sales			170000
Less; Variable
Beginning merchandise inventory	11000
Purchase	86000
Less: Ending merchandise inventory	-22000
Cost of goods sold		75000
Selling expense		20000
Administrative expense		15000
Total variable cost			110000
Contribution margin			60000
Less; Fixed cost
Selling expense	22000
Administrative expense	15000
Total Fixed cost			37000
Net operating income			23000