The following accounting information pertains to Calgary Co. and Toronto Co. companies at the end of 2014. The only difference between the two companies is that Calgary Co. uses FIFO while Toronto Co. uses LIFO.
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Required:
a. Compute the gross margin percentage for each company and identify the company that appears to be charging the higher prices in relation to its cost.
b. For each company, compute the inventory turnover ratio and the average days to sell inventory. Identify the company that appears to be incurring the higher inventory financing cost.
c. Explain why a company with the lower gross margin percentage has the higher inventory turnover ratio.