Question

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

		Amount
Number of units sold		11,000
Selling price per unit	$	17
Variable selling expense per unit	$	2
Variable administrative expense per unit	$	1
Total fixed selling expense	$	19,000
Total fixed administrative expense	$	15,000
Beginning merchandise inventory	$	12,000
Ending merchandise inventory	$	25,000
Merchandise purchases	$	88,000

1. Prepare a traditional income statement.

2. Prepare a contribution format income statement.

Answer 1

Solution:

1. Tradtional Income Statement

	Sales	187000
Less:	Cost of goods sold (W.N. - 1)	75000
	Gross Profit	112000
Less:	Selling Expense ( Fixed & Variable)	41000
	Administrative Expense ( Fixed & Variable)	26000
	Net Opearting Income	45000

2. Contribution Format Income Statement :

Sales		187000
Variable Expenses
Cost of goods sold (W.N. - 1)	75000
Selling Expense	22000
Administartive Expense	11000
		108000
Contribution Margin		79000
Fixed Expenses
Selling Expense	19000
Administartive Expense	15000
		34000
Net Opearting Income		45000

W.N. 1

Cost of Goods Sold = Opening Stcok + Purchase - Closing Stock

12000+88000-25000

= 75000