Various inventory costing methods; gross profit ratio
Response to the following problem:
Topanga Group began operations early in 2016. Inventory purchase information for the quarter ended March 31, 2016, for Topanga's only product is provided below. The unit costs include the cost of freight. The company uses a periodic inventory system.
|
Data of Purchase
|
Units
|
Unit Cost
|
Total Cost
|
|
Jan. 7
|
5,000
|
$4.00
|
$ 20,000
|
|
Fob. 16
|
12,000
|
4.50
|
54,000
|
|
March 22
|
17,000
|
5.00
|
85,000
|
|
Totals
|
34,000
|
|
$159,000
|
Sales for the quarter, all at $7.00 per unit, totaled 20,000 units leaving 14,000 units on hand at the end of the quarter.
Required:
1. Calculate the Topanga's gross profit ratio for the first quarter using:
a. FIFO
b. LIFO
c. Average cost
2. Comment on the relative effect of each of the three inventory methods on the gross profit ratio.