Question

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

Amount
Number of units sold 12,000
Selling price per unit $16
Variable selling expense per unit $2
Variable administrative expense per unit $2
Total fixed selling expense $21,000
Total fixed administrative expense $13,000
Beginning merchandise inventory $10,000
Ending merchandise inventory $22,000
Merchandise purchases $87,000

Required:
a. Prepare a traditional income statement.
b. Prepare a contribution format income statement

Answer 1

Part a.

Traditional income statement.

Sales ($16 x 12,000) $192,000

Less Costs of Sales

Beginning merchandise inventory $10,000

Add Merchandise purchases $87,000

Less Ending merchandise inventory ($22,000) ($75,000)

Gross Profit $117,000

Less Expenses

Variable selling expense per unit ($2 x 12,000) ($24,000)

Variable administrative expense per unit ($2 x 12,000) ($24,000)

Fixed selling expense ($21,000 )

Fixed administrative expense ($13,000)

Net Income $35,000

Part b.

Contribution format income statement

$35,000

Sales ($16 x 12,000) $192,000

Less Variable Costs

Cost of Goods Sold :

Beginning merchandise inventory $10,000

Add Merchandise purchases $87,000

Less Ending merchandise inventory ($22,000) ($75,000)

Variable selling expense per unit ($2 x 12,000) ($24,000)

Variable administrative expense per unit ($2 x 12,000) ($24,000)

Contribution $69,000

Less Fixed Costs

Fixed selling expense ($21,000 )

Fixed administrative expense ($13,000)

Net Income $35,000