Exercise 16 Traditional and Contribution Format Income State

Exercise 1-6 Traditional and Contribution Format Income Statements [LO1-6]

Prepare a traditional income statement.

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Prepare a contribution format income statement.

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

Solution

Solution: 1. Cherokee, Inc. Traditional Income Statement Sales $221,000 Cost of goods sold 74,000 Gross margin 147,000 Selling and administrative expenses: Administrative expenses 40,000 Selling expenses 46,000 86,000 Net operating income $61,000 Working Notes: Cherokee, Inc. Traditional Income Statement Sales $221,000 a [No. of units sold x selling price per unit] [13,000 x $17 ] Less: Cost of goods sold 74,000 b [Beginning merchandise inventory + Merchandise purchases - Ending merchandise inventory] [8,000 + 88,000 - 22,000] Gross margin 147,000 c=a-b Selling and administrative expenses: Administrative expenses 40,000 d [(variable admin exp. Per unit x no. of units sold) + total fixed admin. exp. ] [(2 x 13,000) + 14,000] Selling expenses 46,000 e [(variable selling exp. Per unit x no. of units sold) + total fixed selling exp. ] [(2 x 13,000) + 20,000] 86,000 f=d+e Net operating income $61,000 g=c-f 2. Cherokee, Inc. Contribution Format Income Statement   Sales 221,000   Variable expenses:        Cost of goods sold 74,000        Selling expenses 26,000        Administrative expenses 26,000 126,000   Contribution margin 95,000   Fixed expenses:        Selling expenses 20,000        Administrative expenses 14,000 34,000   Net operating income 61,000 Working Notes: Cherokee, Inc. Contribution Format Income Statement Sales $221,000 a [No. of units sold x selling price per unit] [13,000 x $17 ]   Variable expenses:        Cost of goods sold 74,000 b [Beginning merchandise inventory + Merchandise purchases - Ending merchandise inventory] [8,000 + 88,000 - 22,000]        Selling expenses 26,000 c [(variable selling exp. Per unit x no. of units sold] [2 x 13,000 ]        Administrative expenses 26,000 d [(variable admin exp. Per unit x no. of units sold] [2 x 13,000 ] 126,000 e=b+c+d   Contribution margin 95,000 f=a-e   Fixed expenses:        Selling expenses 20,000 g        Administrative expenses 14,000 h 34,000 i=g+h   Net operating income 61,000 j=f-i Please feel free to ask if anything about above solution in comment section of the question.