Questions: Smith Company sold inventory that cost 6,800 for 12,600 cash. Freight cost was 780 paid in cash. The freight terms were FOB shipping point. Based on this information, gross margin would be 5,800. net income would be 5,020 gross margin would be 5.020. None of the answers are correct.

Solution Steps

To solve this problem, we need to calculate the gross margin and net income based on the given information. The gross margin is calculated as the difference between the sales revenue and the cost of goods sold (COGS). The net income is calculated by subtracting the freight cost from the gross margin, as the freight cost is an additional expense incurred by the company.

1. Calculate the gross margin: Subtract the cost of goods sold from the sales revenue.
2. Calculate the net income: Subtract the freight cost from the gross margin.

To find the gross margin, we subtract the cost of goods sold (COGS) from the sales revenue. The formula is:

\[ \text{Gross Margin} = \text{Sales Revenue} - \text{Cost of Goods Sold} \]

Given:

• Sales Revenue = \$12,600
• Cost of Goods Sold = \$6,800

Substituting the values:

\[ \text{Gross Margin} = 12,600 - 6,800 = 5,800 \]

Net income is calculated by subtracting the freight cost from the gross margin. The formula is:

\[ \text{Net Income} = \text{Gross Margin} - \text{Freight Cost} \]

Given:

• Freight Cost = \$780

Substituting the values:

\[ \text{Net Income} = 5,800 - 780 = 5,020 \]

Final Answer