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Assume the perpetual inventory system is used.

1) Green Company purchased merchandise inventory that cost $64,000 under terms of 2/10, n/30 and FOB shipping point.
2) Green Company paid freight cost of $2,400 to have the merchandise delivered.
3) Payment was made to the supplier on the inventory within 10 days.
4) All of the merchandise was sold to customers for $94,000 cash and delivered under terms FOB destination with freight cost amounting to $1,600.

-What is the amount of gross margin that results from these transactions?

Question

[The following information applies to the questions displayed below.]
 
Assume the perpetual inventory system is used.

1) Green Company purchased merchandise inventory that cost $64,000 under terms of 2/10, n/30 and FOB shipping point. 
2) Green Company paid freight cost of $2,400 to have the merchandise delivered. 
3) Payment was made to the supplier on the inventory within 10 days. 
4) All of the merchandise was sold to customers for $94,000 cash and delivered under terms FOB destination with freight cost amounting to $1,600.

-What is the amount of gross margin that results from these transactions?

Quizplus · Accepted Answer

Green Company is responsible for the transportation-in costs of $2,400 since the inventory was shipped FOB shipping point by the supplier.
Purchases = Purchases - Purchase discount + Transportation-in
Purchases = $64,000 - ($64,000 × 0.02)+ $2,400 = $65,120
All of the merchandise sold to customers was delivered under terms FOB destination;as such Green Company was responsible for the transportation-out cost of $1,600.However,transportation-out is an operating expense and,as such,does not affect the gross margin calculation.
Gross margin = Net sales- Cost of goods sold
Gross margin = $94,000 - $65,120 = $28,880

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