Question

Assume the perpetual inventory method is used. 1) Green Company purchased merchandise inventory that cost $16,700 under terms of 4/10, n/30 and FOB shipping point. 2) The company paid freight cost of $670 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 $24,900 cash and delivered under terms FOB shipping point with freight cost amounting to $470. The gross margin from these transactions of Green Company is

Answer 1

Answer:

The gross margin from these transactions of Green Company is is $8,198

Explanation:

Gross margin : The gross margin is shows a difference between sales, cost of goods sold, and others cost also.

In mathematically,

Gross margin = Sales - Cost of good sold - freight cost of pucrhase

where,

Sales = $24,900

Cost of good sold = Purchase × ( 1 - Discount rate)

                              = $16,700 × (1 - 0.04)

                              = $16,032

Freight cost = $670

Now apply these amounts in the above equation

So gross margin = $24,900 - $16,032 - $670

                            = $8,198

The freight on sales is paid by the buyer, hence it is not considered.

Thus, The gross margin from these transactions of Green Company is is $8,198