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

		Amount
Number of units sold		20,000
Selling price per unit	$	30
Variable selling expense per unit	$	4
Variable administrative expense per unit	$	2
Total fixed selling expense	$	40,000
Total fixed administrative expense	$	30,000
Beginning merchandise inventory	$	24,000
Ending merchandise inventory	$	44,000
Merchandise purchases	$	180,000

Required:

1. Prepare a traditional income statement.

2. Prepare a contribution format income statement.

Prepare a traditional income statement. Cherokee, Inc. Traditional Income Statement Sales $ 600,000 160,000 440,000 Cost of goods sold Gross margin Selling and administrative expenses: Administrative expenses Selling expenses $ 70,000 120,000 190,000 Net operating incomePrepare a contribution format income statement. Cherokee, Inc. Contribution Format Income Statement $ 600,000 Sales Variable expenses: Cost of goods sold 160,000 Selling expenses Administrative expenses 160,000 Contribution margin Fixed expenses: Selling expenses Administrative expenses

Answer “cherokee inc. is a merchandiser that provided the following information: …”

Sale = units sold ×Selling price = 20,000 × 30 = $6000,000 Cost
of goods sold = Beginning inventory + Purchases – Ending inventory
= $24,000 + $180,000 – 44,000 = $160,000

Selling expenses = (20,000 × 4) + $40,000 = $120,000.

Administrative expenses = (20000 × 2) + 30,000 =$70,000.

1) Cherokee inc, Traditional Income statement

Sales		$600,000
Cost of goods sold		160,000
Gross Profit		440,000
Selling and Administrative expenses:-
Selling Expenses	$120,000
Administrative expenses	70,000
		$190,000
Net Operating income		$250,000.

2) Cherokee Inc, Contribution Format Income statement.

Sales		$600,000
Variable Expenses
Cost of goods sold	$160,000
Selling expenses	80,000
Administrative expenses	40,000
		280,000
Contribution margin		320,000

Fixed Expenses
Selling expenses	$40,000
Administrative expenses	30,000
		$70,000
Net Operating income		$250,000.

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