arKs OMmport bookmarks now Chapter 1 Homework Assignment Sav

arKs OMmport bookmarks now... Chapter 1 Homework Assignment Saved 6 Exercise 1-6 Traditional and Contribution Format Income Statements [LO1-6) Cherokee Inc. is a merchandiser that provided the following information: 1.5 points 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 11,000 $17 eBook Hint Print References s 18,000 s 15,000 $ 11,000 $ 23,000 $ 87,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare a contribution format income statement. Cherokee, Inc.

Solution

Solution:

Cost of merchandise Sold = Beginning inventory 11,000 + Purchases 87,000 – Ending 23,000 = $75,000

Part 1 – Traditional Income Statement

Traditional Income Statement

$$

$$

Sales (11,000 Units x $17)

$187,000

Cost of Goods Sold

$75,000

Gross Profit

$112,000

Selling and administrative expense:

Variable administrative expense (11,000 Units x 3)

$33,000

Variable selling expense (11,000 Units x 1)

$11,000

Fixed Selling Expenses

$18,000

Fixed administrative expense

$15,000

Total Selling and administrative expense

$77,000

Net Operating Income

$35,000

Part 2 – Contribution Format Income Statement

Contribution Format Income Statement

$$

$$

Sales (11,000 Units x $17)

$187,000

Variable Expenses:

Variable Cost of Goods Sold

$75,000

Variable administrative expense (11,000 Units x 3)

$33,000

Variable selling expense (11,000 Units x 1)

$11,000

Total Variable Expenses

$119,000

Contribution Margin

$68,000

Fixed Expenses:

Fixed Selling Expenses

$18,000

Fixed administrative expense

$15,000

Total Fixed Expense

$33,000

Net Operating Income

$35,000

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Traditional Income Statement
	$$	$$
Sales (11,000 Units x $17)		$187,000
Cost of Goods Sold		$75,000
Gross Profit		$112,000
Selling and administrative expense:
Variable administrative expense (11,000 Units x 3)	$33,000
Variable selling expense (11,000 Units x 1)	$11,000
Fixed Selling Expenses	$18,000
Fixed administrative expense	$15,000
Total Selling and administrative expense		$77,000
Net Operating Income		$35,000