The inventory records for Radford Co. reflected the following:

Beginning inventory @ May 1 700 units @ $3.00

First purchase @ May 7 800 units @ $3.20

Second purchase @ May 17 1000 units @ $3.30

Third purchase @ May 23 600 units @ $3.40

Sales @ May 31 2400 units @ $4.90

1. What is the amount of gross margin assuming the weighted-average inventory cost flow method? (Round your intermediate calculations to two decimal places.)

A. $3600

B. $4320

C. $4008

D. $8160

The correct answer is option C. $4.008.

Explanation:

The amount of gross margin is calculated by the formula Gross Margin = Quantity sold * (sale price per unit - weight-average cost per unit). In order to get the weight-average cost per unit, you need to create a table where the weight-average cost is calculated after each purchase operation as follows: (Quantity purchased / total inventory) * purchased price+[1 - (Quantity purchased / total inventory) ]*inventory cost per unit. Bear in mind that the cost will change with every purchase. In this exercise you have 3 purchase operations, so you will have to calculate 3 different weight-average costs. The relevant average cost is the last one because it is the value to be used in the first formula stated.