Question

Cherokee Inc. is a merchandiser that provided the following information: Amount 13,000 16 Number of units sold Selling price per unit Variable selling expense per unit Variable administrative expense per unit Total fixed selling expense Total fixed administrative expense Beginning merchandise inventory Ending merchandise inventory Merchandise purchases $ 22,000 s 16,000 12,000 25,000 86,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement. Complete this question by entering your answers in the tabs below. Required 1 Required 2

Answer 1

Computation of Cost of Goods sold:
Beginning Inventory of merchandise inventory					12000
Add: Merchandise purchase					86000
Cost of goods available for sale					98000
Less: Ending Inventory of Merchandise inventory					25000
Cost of goods sold					73000
Req 1.
Traditional Income Statement:
Revenues (13000 units @ 16)					208000
Less: Cost of goods sold					73000
Gross margin					135000
Less: Selling and admin expenses
Variable selling expenses (13000*1)				13000
Variable Admin expense (13000*1)				13000
Fixed Selling expenses				22000
Fixed Admin expense				16000
Total Selling and admin expenses					64000
Net Operating income					71000
Req 2.
Contribution Margin Income Statement:
Sales revenue (13000 units @16)				208000
Less: variable cost
Cost of goods sold			73000
variable selling expenses			13000
Variable admin expenses			13000
Total Variable cost				99000
Contribution Margin				109000
Less: Fixed cost
Fixed Selling expenses			22000
Fixed Admin expense			16000
Total Fixed cost				38000
Net Operating income				71000