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 1,400 units of inventory for $22 each, what is the amount of gross margin reported on the income statement?

Note: Round your intermediate calculations to two decimal places.

Answer 1

To calculate the amount of gross margin reported on the income statement, subtract the cost of goods sold (COGS) from the total sales revenue. Using the weighted-average cost flow method, calculate the COGS by finding the weighted average cost per unit. Multiply the weighted average cost per unit by the number of units sold, then subtract this from the total sales revenue to find the gross margin. Therefore, the amount of gross margin reported on the income statement is $30,190.

Step-by-step explanation:

To calculate the amount of gross margin reported on the income statement, we need to determine the cost of goods sold (COGS) and subtract it from the total sales revenue. To calculate the COGS using the weighted-average cost flow method, we need to find the weighted average cost per unit. The total cost of the inventory purchased on January 1 is $14,300 (1,300 units x $11 per unit), and the total cost of the inventory purchased on January 10 is $4,050 (600 units x $6.75 per unit). The total cost of goods available for sale is $18,350 ($14,300 + $4,050).

The weighted average cost per unit is calculated as follows:

($14,300 + $4,050) / (1,300 + 600) = $18,350 / 1,900 = $9.65

The COGS for the 1,400 units sold is:

1,400 units x $9.65 per unit = $13,510

The gross margin is calculated by subtracting the COGS from the total sales revenue:

$22 x 1,400 units - $13,510 = $30,190

Therefore, the amount of gross margin reported on the income statement is $30,190.