1 ### Contribution Format Income Statement GuideTo prepare a contribution format income statement for Cherokee, Incorporated, follow these steps:#### Format OverviewA contribution format income statement is structured to highlight variable costs and fixed expenses separately, offering clear insights into cost behavior and operating leverage. This format is useful for internal decision-making.#### Sections of the Statement1. **Variable Expenses:** - **Purpose:** These are costs that change in total directly and proportionally with changes in the activity level. - **Entries:** List all the variable costs associated with the production and sale of goods or services. This can include costs like direct materials, direct labor, and variable portions of manufacturing overhead.2. **Fixed Expenses:** - **Purpose:** These costs remain constant in total regardless of changes in the activity level. - **Entries:** Include all fixed operational costs such as salaries, rent, and fixed portions of manufacturing overhead.#### Preparation Instructions1. **Identify all variable expenses** associated with the company’s production processes.2. **Identify all fixed expenses,** ensuring they cover operational and administrative costs.3. Input the expenses into the designated sections of the statement.4. Calculate the total for both variable and fixed expenses to complete the statement.By understanding and utilizing the contribution format income statement, Cherokee, Incorporated can make more informed business decisions, particularly regarding cost control and budgeting strategies. ### Cherokee Incorporated Information for Income Statements**Overview:**Cherokee Incorporated, a merchandiser, has provided the following financial data for analysis and income statement preparation.**Data Provided:**- **Number of units sold:** 11,000- **Selling price per unit:** $16- **Variable selling expense per unit:** $2- **Variable administrative expense per unit:** $3- **Total fixed selling expense:** $20,000- **Total fixed administrative expense:** $14,000- **Beginning merchandise inventory:** $10,000- **Ending merchandise inventory:** $22,000- **Merchandise purchases:** $88,000**Tasks:**1. **Prepare a Traditional Income Statement:** - **Sales:** Calculate by multiplying the number of units sold by the selling price per unit. - **Cost of Goods Sold (COGS):** Consider beginning inventory, add purchases, subtract ending inventory. - **Gross Margin:** Sales minus COGS. - **Selling and Administrative Expenses:** - Total Variable Selling Expenses: Multiply units sold by variable selling expense per unit. - Total Variable Administrative Expenses: Multiply units sold by variable administrative expense per unit. - Add fixed selling and administrative expenses. - **Net Income:** Gross Margin minus total selling and administrative expenses.2. **Prepare a Contribution Format Income Statement:** - **Sales:** Same as above. - **Variable Expenses:** Include both selling and administrative. - **Contribution Margin:** Sales minus variable expenses. - **Fixed Expenses:** Add fixed selling and administrative expenses. - **Net Income:** Contribution Margin minus fixed expenses.These tasks require accurate calculations to determine the financial performance of Cherokee Incorporated. Ensure that each figure corresponds correctly in both statement formats.

The income statement, which summarizes the business entity's performance for the fiscal year, is a…

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 Amount 11,000 $ 16 $2 $3 $ 20,000 $ 14,000 $ 10,000 $ 22,000 $ 88,000

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 Amount 11,000 $ 16 $2 $3 $ 20,000 $ 14,000 $ 10,000 $ 22,000 $ 88,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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