Stubbs Company uses the perpetual inventory method.On January 1,2016,Stubbs purchased 400 units of inventory that cost $8.00 each.On January 10,2016,the company purchased an additional 600 units of inventory that cost $9.00 each.If Stubbs uses a weighted average cost flow method and sells 700 units of inventory for $16.00 each,the amount of gross margin reported on the income statement will be:
A)$5,180.
B)$5,250.
C)$5,000.
D)$6,020.

Question

Quizplus · Accepted Answer

The weighted average cost per unit is calculated as [(400 units * $8) + (600 units * $9)] / 1000 units = $8.60 per unit. The cost of goods sold for 700 units is 700 * $8.60 = $6,020. The sales revenue is 700 * $16 = $11,200. Therefore, the gross margin is $11,200 - $6,020 = $5,180.

Stubbs Company Uses the Perpetual Inventory Method