Cherokee Inc is a merchandiser that provided the following i

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

Solution

Cherokee Inc Traditional Income Statement   Sales 20000*30 600000   Cost of goods sold 24000+180000-44000 160000   Gross margin 440000   Selling and administrative expenses:        Selling expenses (4*20000)+40000 120000        Administrative expenses (2*20000)+30000 70000   Net operating income 250000 Cherokee Inc Contribution Format Income Statement   Sales 600000   Variable expenses:        Cost of goods sold 160000        Selling expenses 20000*4 80000        Administrative expenses 2*20000 40000 280000   Contribution margin 320000   Fixed expenses:        Selling expenses 40000        Administrative expenses 30000 70000   Net operating income 250000