Cherokee Inc. is a merchandiser that provided the following information: Amount
Number of units sold 13,000
Selling price per unit $ 17
Variable selling expense per unit$ 2
Variable administrative expense
per unit $ 2
Total fixed selling expense $ 21,000
Total fixed administrative expense $ 14,000
Beginning merchandise inventory $ 9,000
Ending merchandise inventory $ 23,000
Merchandise purchases $ 89,000
Required:
1. Prepare a traditional income statement.
2. Prepare a contribution format income statement.

Instructions are below.

Explanation:

Giving the following information:

Number of units sold 13,000

Selling price per unit $ 17

Variable selling expense per unit $2

Variable administrative expense per unit $ 2

Total fixed selling expense $ 21,000

Total fixed administrative expense $ 14,000

Beginning merchandise inventory $ 9,000

Ending merchandise inventory $ 23,000

Merchandise purchases $ 89,000

First, we need to calculate the cost of merchandise sold:

COGS= beginning finished inventory + cost of goods purchased - ending finished inventory

COGS= 9,000 + 89,000 - 23,000= $75,000

1) Traditional income statement:

Sales= 13,000*17= 221,000

COGS= (75,000)

Gross profit= 146,000

Total selling expense= (2*13,000)+21,000= (47,000)

Total administrative expense= (2*13,000) + 14,000= (40,000)

Net operating income= 59,000

2) Contribution format:

Sales= 13,000*17= 221,000

Total variable cost= (4*13,000) + 75,000= (127,000)

Contribution margin= 94,000

Total fixed selling expense= (21,000)

Total fixed administrative expense= (14,000)

Net operating income= 59,000

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