Question

Cherokee Inc. is a merchandiser that provided the following information: Amount Number of units sold 14,000 Selling price per unit $ 17 Variable selling expense per unit $ 2 Variable administrative expense per unit $ 3 Total fixed selling expense $ 19,000 Total fixed administrative expense $ 15,000 Beginning merchandise inventory $ 10,000 Ending merchandise inventory $ 23,000 Merchandise purchases $ 86,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.

Answer 1

Answer:

Results are below.

Explanation:

Traditional format income statement:

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

COGS= 10,000 + 86,000 - 23,000

COGS= $73,000

Sales= 14,000*17= 238,000

COGS= (73,000)

Gross profit= 165,000

Total selling expense= (2*14,000 + 19,000)= (47,000)

Total administrative expense= (3*14,000 + 15,000)= (57,000)

Net operating income= 61,000

Contribution margin income statement:

Total variable cost= 73,000 + 14,000*2 + 14,000*3= 143,000

Sales= 14,000*17= 238,000

COGS= (143,000)

Gross profit= 95,000

Total fixed selling expense= (19,000)

Total fixed administrative expense= (15,000)

Net operating income= 61,000