Question

Amount 11,000 17 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 $ 21,000 $ 15,000 $ 10,000 $ 22,000 $ 86,000 Required: 1. Prepare a traditional income statement 2. Prepare a contribution format income statement.

Answer 1

Answer:

Question is incomplete. Complete question is given below:                                

Explanation:

Complete question may be written as:

Cherokee Inc. is a merchandiser that provided the following information: Number of units sold 11,000 Selling price per unit $ 17 Variable selling expense per unit $ 1 Variable administrative expense per unit $ 2 Total fixed selling expense $ 21,000 Total fixed administrative expense $ 15,000 Beginning merchandise inventory $ 10,000 Ending merchandise inventory $ 22,000 Merchandise purchases $ 86,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.      

Solution

Given data

Units sold = 11000

Selling Price = 17 per unit

Opening inventory = 10000

Closing inventory =  22000

Purchases = 86000

Variable selling price per unit = $ 1

Administrative selling price per unit = $ 2

Fixed Selling Expense = 21000

Fixed administrative expense = 15000

Traditional Income Statement:

Sales = Selling Price x Units sold = 11000 x 17 = 187000

Cost of goods sold = Opening inventory  + Purchases - Closing inventory

Cost of goods sold = 10000 + 86000 - 22000

Cost of goods sold = 74000

Selling expense = Variable selling expense + Fixed Selling price

Selling expense = ( 1 x 11000) + 21000 = 32000

Administrative expense = Variable administrative expense + Fixed administrative price

Administrative expense = ( 2 x 11000) + 15000 = 37000

Net Operating income under traditional income statement approach is = Sales - Cost of goods sold- Selling expense - Fixed Expense

Net Operating income under traditional income statement format = 187000 - 74000- 32000 - 37000 = 44000

Contribution format income Statement

Contribution Margin = Sales - Cost of goods sold- Variable selling expense- variable administrative expense

Contribution Margin = 187000 - 74000 - 11000 - 22000

Contribution margin =  80000

Net Operating income under contribution format income statement is = Contribution Margin - Fixed Selling Expense - Fixed administrative expense

Net Operating Income under contribution income statement format = 80000 - 21000 - 15000 = 44000.