Cherokee Inc is a merchandiser that provided the following i

Cherokee Inc. is a merchandiser that provided the following information: Amo un 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 inventory Merchandise purchases 20,000 30 40,000 $ 30,000 24,000 $ 44,000 $ 180,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.

Solution

1 Sales 600000 Cost of goods sold 160000 =24000+180000-44000 Gross margin 440000 Selling and administrative expenses: Selling expenses 120000 Administrative expenses 70000 190000 Net operating income 250000 2 Sales 600000 Variable expenses: Cost of goods sold 160000 Selling expenses 80000 Administrative expenses 40000 280000 Contribution margin 320000 Fixed expenses: Selling expenses 40000 Administrative expenses 30000 70000 Net operating income 250000