Cherokee Inc. is a merchandiser that provided the following information:
| Amount | ||
| Number of units sold | 11,000 | |
| Selling price per unit | $ | 18 |
| Variable selling expense per unit | $ | 2 |
| Variable administrative expense per unit | $ | 2 |
| Total fixed selling expense | $ | 19,000 |
| Total fixed administrative expense | $ | 15,000 |
| Beginning merchandise inventory | $ | 11,000 |
| Ending merchandise inventory | $ | 25,000 |
| Merchandise purchases | $ | 88,000 |
Required:
1. Prepare a traditional income statement.
2. Prepare a contribution format income statement.
| Traditional income statement | ||
| Particulars | $ | |
| Sales (11000*18) | 198000 | |
| Cost of goods sold (11000+88000-25000) | 74000 | |
| Gross Margin (198000-74000) | 124000 | |
| Selling and administrative expense | ||
| Selling Expense ((11000*2)+19000) | 41000 | |
| Administrative Expense ((11000*2)+15000) | 37000 | |
| 78000 | ||
| Net operating income (124000-78000) | 46000 | |
| Contribution format income statement | ||
| Particulars | $ | |
| Sales (11000*18) | 198000 | |
| Less: Variable Costs | ||
| Cost of goods sold (11000+88000-25000) | 74000 | |
| Selling Expense (11000*2) | 22000 | |
| Administrative Expense (11000*2) | 22000 | |
| 118000 | ||
| Contribution Margin (198000-118000) | 80000 | |
| Less: Fixed Expenses | ||
| Selling Expense (19000) | 19000 | |
| Administrative Expense (15000) | 15000 | |
| 34000 | ||
| Net operating income (80000-34000) | 46000 | |
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