Question

Stubbs Company uses the perpetual inventory method and the weighted-average cost flow method. On January 1, Year 2, Stubbs purchased 1,300 units of inventory that cost $11.00 each. On January 10, Year 2 , the company purchased an additional 600 units of inventory that cost $6.75 each. If the company sells 1,700 units of inventory for $22 each, what is the amount of gross margin reported on the income statement? (Round your intermediate calculations to two decimal places.): Mulsiple Chotce 320,978 $25,925 $15.422 520.400

Answer 1

Using the weighted-average cost flow method, the Stubbs Company's gross margin after selling 1,700 units of inventory is $20,978.The correct answer is option 5.

Step-by-step explanation:

The Stubbs Company needs to calculate the gross margin reported on the income statement after selling 1,700 units of inventory using the weighted-average cost flow method under the perpetual inventory system. First, we determine the weighted-average cost per unit:

• January 1 purchase: 1,300 units at $11.00 each = $14,300
• January 10 purchase: 600 units at $6.75 each = $4,050
• Total units = 1,300 + 600 = 1,900 units
• Total cost = $14,300 + $4,050 = $18,350
• Weighted-average cost per unit = $18,350 ÷ 1,900 = $9.66 (rounded to two decimal places)

The cost to sell 1,700 units is:

1,700 units × $9.66 = $16,422

Total sales revenue from selling 1,700 units at $22 each is:

1,700 units × $22 = $37,400

Gross margin is calculated as sales minus the cost of goods sold (COGS):

Gross margin = $37,400 - $16,422 = $20,978

Therefore, the gross margin reported on the income statement is $20,978.