Question

Cherokee Inc. is a merchandiser that provided the following information: Number of units sold 14,000 Selling price per unit $ 16 Variable selling expense per unit $ 2 Variable administrative expense per unit $ 2 Total fixed selling expense $ 18,000 Total fixed administrative expense $ 16,000 Beginning merchandise inventory $ 11,000 Ending merchandise inventory $ 23,000 Merchandise purchases $ 85,000 Required:
1. Prepare a traditional income statement.
2. Prepare a contribution format income statement.

Answer 1

Answer:

Results are below.

Explanation:

First, we need to calculate the cost of goods sold:

COGS= beginning finished inventory + cost of goods manufactured - ending finished inventory

COGS= 11,000 + 85,000 - 23,000= $73,000

Traditional format Income Statement:

Sales= 14,000*16= 224,000

COGS= (73,000)

Gross profit= 151,000

Total selling expense= (2*14,000 + 18,000)= (46,000)

Total administrative expense= (2*14,000 + 16,000)= (44,000)

net operating income= 61,000

Contribution format income statement:

Sales= 14,000*16= 224,000

Total variable cost= (73,000 + 2*14,000 + 2*14,000)= (129,000)

Contribution margin= 95,000

Total fixed selling expense= (18,000)

Total fixed administrative expense= (16,000)

Net operating income= 61,000