Stubbs Company uses the perpetual inventory method. On January 1, Year 1, Stubbs
ID: 2545837 • Letter: S
Question
Stubbs Company uses the perpetual inventory method. On January 1, Year 1, Stubbs purchased 700 units of inventory that cost $5.00 each. On January 10, Year 1, the company purchased an additional 600 units of inventory that cost $3.75 each. If Stubbs uses a weighted average cost flow method and sells 1,000 units of inventory for $10.00 each, the amount of gross margin reported on the income statement will be: (Round your intermediate calculations to two decimal places.)
A. 5746
B. 7250
C. 5580
D. 8125
Explanation / Answer
Weighted cost /unit=Total cost/Total units
=[(700*5)+(600*3.75)]/(700+600)=$4.42(Approx)
Hence Cost of goods sold=(1000*4.42)=$4420
Sales value=(1000*10)=$1000
Hence gross margin=Sales revenue-Cost of goods sold
=(10000-4420)
=$5580.