Question

g Cherokee Inc. is a merchandiser that provided the following information: Amount Number of units sold 11,000 Selling price per unit $ 17 Variable selling expense per unit $ 2 Variable administrative expense per unit $ 3 Total fixed selling expense $ 21,000 Total fixed administrative expense $ 15,000 Beginning merchandise inventory $ 8,000 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

Results are below.

Step-by-step explanation:

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

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

COGS= 8,000 + 86,000 - 23,000

COGS= $71,000

Traditional format income statement:

Sales= 11,000*17= 187,000

COGS= (71,000)

Gross profit= 116,000

Total selling expense= (21,000 + 2*11,000)= (43,000)

Total administrative expense= (15,000 + 3*11,000)= (48,000)

Net operating income= 25,000

Contribution format income statement:

Sales= 11,000*17= 187,000

Total variable cost= 71,000 + 2*11,000 + 3*11,000= (126,000)

Contribution margin= 61,000

Total fixed selling expense= (21,000)

Total fixed administrative expense= (15,000)

Net operating income= 25,000