Question

Assume the perpetual inventory method is used.

1.Green Company purchased merchandise inventory that cost $17,500 under terms of 2/10, n/30 and FOB shipping point
2.The company paid freight cost of $750 to have the merchandise delivered
3.Payment was made to the supplier within 10 days
4.All of the merchandise was sold to customers for $26,500 cash and delivered under terms FOB shipping point with freight cost amounting $550.The gross margin from these transactions of Green Company is:

A. $8,200
B. $8,600
C. $9,200
D. $9,600

Answer 1

The gross margin for Green Company, considering the purchase of inventory, payment discounts, shipping costs, and sales revenue, is $8,600.

Step-by-step explanation:

To calculate the gross margin for Green Company, we need to consider the cost of goods sold (COGS), sales revenue, and other relevant costs. Here are the steps:

• Green Company purchased inventory for $17,500 with a discount of 2% if paid within 10 days. Therefore, the discount amount is $17,500 × 0.02 = $350. The adjusted cost of the inventory after the discount is $17,500 - $350 = $17,150.
• The company paid shipping cost of $750 for delivery, which adds to the COGS.
• Since payment was made within 10 days, the discount applies, so we use the adjusted inventory cost of $17,150.
• Thus, the total COGS is the sum of the adjusted inventory cost and the shipping cost: $17,150 + $750 = $17,900.
• All the merchandise was sold for $26,500. We do not include the outbound shipping cost in the COGS because it's FOB shipping point, meaning the customer pays for shipping. The gross margin is calculated as sales revenue minus COGS:

$26,500 (sales revenue) - $17,900 (COGS) = $8,600.

Therefore, the gross margin from these transactions of Green Company is $8,600 (Option B).