Topanga Group began operations early in 2021. Inventory purchase information for the quarter ended March 31, 2021, for Topanga’s only product is provided below. The unit costs include the cost of freight. The company uses a periodic inventory system to report inventory and cost of goods sold.
|Date of Purchase||Units||Unit Cost||Total Cost|
Sales for the quarter, all at $9 per unit, totaled 20,000 units leaving 17,000 units on hand at the end of the quarter.
1. Calculate Topanga’s cost of goods sold for the first quarter using:
- Average cost
2. Calculate Topanga’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.