Stubbs Company uses the perpetual inventory method. On January 1, 2016, Stubbs purchased 1,300...

Question:

Stubbs Company uses the perpetual inventory method. On January 1, 2016, Stubbs purchased 1,300 units of inventory that cost $11.00 each. On January 10, 2016, the company purchased an additional 600 units of inventory that cost $6.75 each. If Stubbs uses a weighted average cost flow method and sells 2,500 units of inventory for $22 each, the amount of gross margin reported on the income statement will be (Round your intermediate calculations to two decimal places.):

a. $30,850.

b. $24,150.

c. $32,600.

d. $38,125.

Gross Margin:

Gross margin refers to the difference between the net sales revenue of the company and the cost of goods that are sold by the company. Thus, it is the sales revenue which the company focuses on retaining after it has incurred all the direct expenses.

Answer and Explanation:

Purchased units of inventory => 1300 *11 = 14,300

Additional units purchased => 600 * 6.75 = 4,050

Cost of goods available for sale = 14,300 + 4,050

=> $ 18,350

Number of units available for sale = 1300 + 600

=> 1,900

Cost per unit under weighted average method = Cost of goods available for sale / Number of units available for sale

=> 18,350 / 1,900

=> 9.658

Cost of goods sold = 2,500 * 9.658 =>24,145

Sales = 2500 * 22 = 55,000

Gross Margin = Sales - Cost of goods sold

=> 55,000 - 24,145

=> 30,855


Learn more about this topic:

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How to Calculate Gross Profit Margin: Definition & Formula

from Financial Accounting: Help and Review

Chapter 5 / Lesson 17
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