Cherokee Inc is a merchandiser that provided the following i

Cherokee Inc. is a merchandiser that provided the following information: Amount 20,000 30 Number of units sold Selling price per unit Variable selling expense per unit Variable administrative expense per unit Total fixed selling expense Total fixed administrative expense Beginning merchandise inventory Ending Merchandise purchases $ 40,000 30,000 $24,000 44,000 $180,000 merchandise inventory Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.

Solution

Requirement 1 Cherokee, Inc Traditional inome Statement Amount in $ Amount in $ Sales (20000*$30) 600000 Less: cost of goods sold 160000 Gross profit 440000 Less:Selling&Admin Expenses Selling Expenses 1,20,000 Adminstrative Expenses 70,000 1,90,000 Net Income 2,50,000 Cost of goods sold =Beginning merchandise Inventory+ Purchases + Ending Merchadise invenotry =$24,000+$180,000-$44,000 =$160,000 Selling Expenses =20,000*$4   +$40,000 =$120,000 Administrative Expenses =20,000*$2 +$30,000 =$70,000 Requirement 2 Contribution Format Income Statement Cherokee, Inc Contribution Format inome Statement Amount in $ Amount in $ Sales (20000*$30) 600000 Less: Variable Expenses Cost of goods sold 160000 Variable selling Expenses 80000 variable Admin Expenses 40000 280000 Contribution margin 320000 Less: Fixed Expenses Fixed selling Expenses 40000 Fixed Admin Expenses 30000 70000 Net Income 250000 Cost of goods sold =Beginning merchandise Inventory+ Purchases + Ending Merchadise invenotry =$24,000+$180,000-$44,000 =$160,000 Selling Expenses =20,000*$4    =$80,000 Administrative Expenses =20,000*$2 =$=40,000