Question

exercise 1-6 (static) traditional and contribution format income statements lo1-6

cherokee incorporated is a merchandiser that provided the following information:

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$$\begin{tabular}{|l|r|} \\hline & amount \\\\ \\hline number of units sold & 20,000 \\\\ selling price per unit & \\$ 30 \\\\ variable selling expense per unit & \\$ 4 \\\\ variable administrative expense per unit & \\$ 2 \\\\ total fixed selling expense & \\$ 40,000 \\\\ total fixed administrative expense & \\$ 30,000 \\\\ beginning merchandise inventory & \\$ 24,000 \\\\ ending merchandise inventory & \\$ 44,000 \\\\ merchandise purchases & \\$ 180,000 \\\\ \\hline \\end{tabular}$$

required:

1. prepare a traditional income statement.
2. prepare a contribution format income statement.

Explanation:

Calculate Cost of Goods Sold

Using the Traditional Income Statement knowledge point:

$$
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$$

Prepare Traditional Income Statement

Using the Traditional Income Statement knowledge point:

$$
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$$

Calculate Variable and Fixed Expenses

Using the Contribution Format Income Statement knowledge point:

$$
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Prepare Contribution Format Income Statement

Using the Contribution Format Income Statement knowledge point:

$$
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$$

Answer:

Question 1: Traditional Income Statement

Cherokee, Incorporated
Sales	\$600,000
Cost of goods sold	160,000
Gross margin	440,000
Selling and administrative expenses:
    Selling expenses	\$120,000
    Administrative expenses	70,000	190,000
Net operating income	\$250,000

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Question 2: Contribution Format Income Statement

Cherokee, Incorporated
Sales	\$600,000
Variable expenses:
    Cost of goods sold	\$160,000
    Selling expenses	80,000
    Administrative expenses	40,000	280,000
Contribution margin	320,000
Fixed expenses:
    Selling expenses	40,000
    Administrative expenses	30,000	70,000
Net operating income	\$250,000