Cherokee Inc. is a merchandiser that provided the following information: Number of units sold 14,000 Selling price per unit $ 16.00 Variable selling expense per unit $ 1.00 Variable administrative expense per unit $ 1.00 Total fixed selling expense $ 20,000 Total fixed administrative expense $ 13,000 Beginning merchandise inventory $ 12,000 Ending merchandise inventory $ 23,000 Merchandise purchases $ 87,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement. HintsReferenceseBook

Results are below.

Explanation:

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

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

COGS= 12,000 + 87,000 - 23,000

COGS= $76,000

Traditional format income statement:

Sales= 14,000*16= 224,000

COGS= (76,000)

Gross profit= 148,000

Total selling expense= (20,000 + 14,000*1)= (34,000)

Total administrative expense= (13,000 + 14,000*1)= (27,000)

Net operating income= 87,000

Contribution format income statement:

Sales= 14,000*16= 224,000

Total variable cost= (76,000 + 14,000 + 14,000)= (104,000)

Contribution margin= 120,000

Total fixed selling expense= (20,000)

Total fixed administrative expense= (13,000)

Net operating income= 87,000

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