Question - Topanga Group began operations early in 2011. Inventory purchase information for the quarter ended March 31, 2011, for Topanga's only product is provided below. The unit costs include the cost of freight. The company uses a periodic inventory system.
Date of Purchase Units Unit Cost Total cost
Jan 7 5000 $4.00 $20000
Feb 16 12,000 4.50 54,000
March 22 17,000 5.00 85,000
Totals 34000 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.