Question

Cherokee Inc. is a merchandiser that provided the following information: Amount Number of units sold 12,000 Selling price per unit $ 16 Variable selling expense per unit $ 2 Variable administrative expense per unit $ 2 Total fixed selling expense $ 20,000 Total fixed administrative expense $ 15,000 Beginning merchandise inventory $ 9,000 Ending merchandise inventory $ 23,000 Merchandise purchases $ 89,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.

Answer 1

1
Traditional Income Statement
Sales		192000	=12000*16
Cost of goods sold		75000	=9000+89000-23000
Gross margin		117000
Selling and administrative expenses:
Selling expenses	44000		=20000+(12000*2)
Administrative expenses	39000		=15000+(12000*2)
		83000
Net operating income		34000
2
Contribution Format Income Statement
Sales		192000
Variable expenses:
Cost of goods sold	75000		=9000+89000-23000
Selling expenses	24000		=12000*2
Administrative expenses	24000		=12000*2
		123000
Contribution margin		69000
Fixed expenses:
Selling expenses	20000
Administrative expenses	15000
		35000
Net operating income		34000