Question

Cherokee Inc. is a merchandiser that provided the following information: 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 Amount 10,000 $ 17 $ 2 $ 3 $21,000 $14,000 $10,000 $23,000 $88,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.

Answer 1

Requirements:

1) Traditional Income statement

Net operating Income:$10000

2) Contribution format Income statement

Net operating Income:$10000

1) Preparation of a Traditional Income statement

Cherokee Inc.,

Traditional Income statement

Particulars	Amount($)	Amount($)
Sales revenue[WN2]		170000
Cost of goods sold[WN1]		(75000)
Gross Margin
Selling and administrative expenses		95000
Selling expenses {(10000*2)+21000}	41000
Administrative expenses {(10000*3)+14000}	44000
Total selling and administrative expenses		85000
Net operating Income		10000

2) Preparation of a Contribution format Income statement

Cherokee Inc.,

Contribution format Income statement

Particulars	Amount($)	Amount($)
Sales revenue[WN2]		170000
Variable expenses
Cost of goods sold[WN1]	75000
Selling expenses	20000
Administrative expenses	30000
Total variable expenses		(125000)
Contribution margin		45000
Fixed expenses:
Selling expenses	21000
Administrative expenses	14000
Total fixed cost		(35000)
Net operating Income		10000

working notes[WN]

1) Cost of goods sold

Particulars	Amount($)
Beginning inventory	10000
Add:
Purchases	88000
Less:
Ending Inventory	(23000)
Cost of goods sold	75000

2) Sales revenue

=Number of units sold*selling price per unit

=10000*$17

=$170000

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