Question

Cherokee Inc. is a merchandiser that provided the following information:

Answer 1

Answer:

Results are below.

Explanation:

The difference between the traditional format and the contribution format is that the latter incorporates all variable components in the cost of goods sold (total variable cost).

Traditional format income statement:

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

COGS= 9,000 + 87,000 - 26,000

COGS= $70,000

Sales= 11,000*16= 176,000

COGS= (70,000)

Gross profit= 106,000

Total selling expense= (1*11,000) + 22,000= (33,000)

Total administrative expense= (1*11,000) + 15,000= (26,000)

Net operating income= 47,000

Now, the contribution format:

Total variable cost= COGS + variable selling expense + variable administrative expense

Total variable cost= 70,000 + 11,000 + 11,000

Total variable cost= $92,000

Sales= 176,000

Total variable cost= (92,000)

Contribution margin= 84,000

Total fixed selling expense= (22,000)

Total fixed administrative expense= (15,000)

Net operating income= 47,000