Question

Assume the perpetual inventory method is used:

a. Green Company purchased merchandise inventory that cost $16,800 under terms of 2/10, n/30 and FOB shipping point.
b. Green Company paid freight cost of $680 to have the merchandise delivered.
c. Payment was made to the supplier on the inventory within 10 days.
d. All of the merchandise was sold to customers for $25,100 cash and delivered under terms FOB destination with freight cost amounting to $480.

The gross margin from these transactions of Green Company is:________

Answer 1

Gross margin = $8156

Step-by-step explanation:

Formula for gross margin is given by;

Gross margin = Revenue - Cost of goods sold

where,

Revenue = $25100

Cost of goods sold = (cost of Purchase × ( 1 - Discount rate)) + freight cost

Thus;

Cost of goods sold = $16800 - (16800 × 0.02)) + $480

Cost of goods sold = $16944

Thus;

Gross margin = $25100 - $16944

Gross margin = $8156