Problem: A new textbook is published in the spring of 2011. Your campus bookstore buys 400 copies at $70 each in June, an additional 1,000 copies in August at $72 each, and 600 copies in December at $75 each. At the end of December 2011, the bookstore has sold 1,900 copies of the text.
Find the cost of goods sold and the cost of ending inventory:
a) under the weighted average cost method.
b) under the FIFO method.
c) under the LIFO method.
Using your calculations as a guide, explain how different inventory costing methods affect the numerator and denominator of the inventory turnover ratio when unit costs are increasing.
Conclude your explanation by identifying the method that produces the highest (and lowest) inventory turnover ratio.