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Stubbs Company uses the perpetual inventory method. On January 1, 2016, Stubbs purchased 400 units of...

Stubbs Company uses the perpetual inventory method. On January 1, 2016, Stubbs purchased 400 units of inventory that cost $8.00 each. On January 10, 2016, the company purchased an additional 600 units of inventory that cost $9.00 each. If Stubbs uses a weighted average cost flow method and sells 700 units of inventory for $16.00 each, the amount of gross profit reported on the income statement will be:

A. $5,180. B. $5,250. C. $5,000. D. $6,020.

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Answer #1

Total cost = (400*8)+(600*9) = 8600

Total units = 400 + 600 = 1000

Average cost per unit = 8600/1000 = 8.60

Gross profit = Sales revenue - Cost of Goods Sold

= (700*16) - (700*8.60)

= 11,200 - 6020

= 5180

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