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. Required1) Prepare a traditional income statement.2 )Prepare a contribution format income statement.

Answer and Explanation:

                     1.  Income Statement as on ()

Particular                                  Amount

Sales(20000 x $30)                $600,000

Less: COGS                              $160,000

inventory = $24,000

Less :End inventory = $44,000

Add :purchases $180,000                                    

Gross Profit                               $440,000

Less: Fixed expenses              $70,000

($40,000+$30,000)                                  

                                                 $370,000

Less variable Expenses           $120,000

(20,000 x $4) = $80,000

(20,000 x $2) = $40,000                            

Net Profit                                   $250,000

           2. Contribution Format Income Statement

Particular                                              Amount

Sales(20000 x $30)                            $600,000

Less : Variable Expenses

COGS(24000+180000-44000)           $160,000

Selling Expenses(20000x$4)              $80,000

Administrative exp (20000x$2)          $40,000

Contribution                                         $320,000

Less: Fixed Expenses

Selling exp                                            $40,000

Administrative exp                               $30000

Net Profit                                            $250,000

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