Topanga Group began operations early in 2018. Inventory purchase information for the quarter ended March 31, 2018, 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 PurchaseUnits Unit CostTotal CostJan. 72,000 $2.00 $4,000 Feb. 1618,000 3.00 54,000 March 2222,000 4.00 88,000 Totals42,000 146,000
Sales for the quarter, all at $6 per unit, totaled 27,000 units leaving 15,000 units on hand at the end of the quarter.
Required:
1. Calculate Topanga's cost of goods sold for the first quarter using:
- FIFO
- LIFO
- Average cost
2. Calculate Toponga's gross profit ratio for the first quarter using FIFO, LIFO, and Average cost.
3. Comment on the relative effect of each of the three inventory methods on the gross profit ratio.