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. Date of Purchase Units Total Cost Unit Cost $ 20,000 5,000 12,000 17,000 $4.00 Jan. 7 Feb. 16 March 22 4.50 54,000 85,000 5.00 Totals $159,000 34,000 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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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.
Date of Purchase
Units
Total Cost
Unit Cost
$ 20,000
5,000
12,000
17,000
$4.00
Jan. 7
Feb. 16
March 22
4.50
54,000
85,000
5.00
Totals
$159,000
34,000
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.
Transcribed Image Text: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. Date of Purchase Units Total Cost Unit Cost $ 20,000 5,000 12,000 17,000 $4.00 Jan. 7 Feb. 16 March 22 4.50 54,000 85,000 5.00 Totals $159,000 34,000 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.
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