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Stubbs Company uses the perpetual inventory method. On January 1, Year 1, Stubbs purchased 700 units...

Stubbs Company uses the perpetual inventory method. On January 1, Year 1, Stubbs purchased 700 units of inventory that cost $5.00 each. On January 10, Year 1, the company purchased an additional 600 units of inventory that cost $3.75 each. If Stubbs uses a weighted average cost flow method and sells 1,000 units of inventory for $10.00 each, the amount of gross margin reported on the income statement will be: (Round your intermediate calculations to two decimal places.)

Multiple Choice

  • $5,746.

  • $5,580.

  • $8,125.

  • $7,250.

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Answer #1

Total cost = (700*5)+(600*3.75) = 5750

Total units = 700+600 = 1300

Average cost per unit = 5750/1300 = 4.42 per unit

Gross margin = Sales - Cost of Goods Sold

= (1,000*10) - (1,000*4.42)

= 5580

Option B is the answer

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