Question

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 Jan. 7 5,000 $4.00 $ 20,000 Feb. 16 12.000 4.50 54,000 March 22 17,000 5.00 85,000 Total purchases 34.000 $ 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 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.

GIVEN INFORMATION!

I JUST NEED HELP WITH PART C

Answer 1

Sales (20000 x $ 7) $ $ 140,000 Cost of ending Inventory - FIFO Ending Units Cost Inventory 6000 $ 5 $ 30,000 Ending Inventory $ 30,000 $ Cost of Goods avail for sale less: Ending Inventory Cost of Goods sold $ $ 159,000 30,000 129,000 Gross profit ( $140000 - $129000) $ 11,000 Cost of ending Inventory - LIFO Ending Units Cost Inventory 5000 $ 4.00 $ 20,000 1000 $ 4.50 $ 4,500 $ 24,500 Cost of Goods avail for sale less: Ending Inventory Cost of Goods sold $ $ $ 159,000 24,500 134,500 Gross profit ($140000 - $134500) $ 5,500 Average Cost = ($159,000 / 34,000) $ 4.68

Cost of ending Inventory - Average Weighted Ending Units Inventory 6000 $ 4.68 $ 28,080 $ 28,080 avg Cost Cost of Goods avail for sale less: Ending Inventory Cost of Goods sold $ $ $ 159,000 28,080 130,920 Gross profit ( $140000 - $130920) $ 9,080 FIFO LIFO Average Gross profit Sales Gross profit Ratio $ 11,000 $ 140,000 7.86% $ 5,500 $ 140,000 3.93% $ 9,080 $ 140,000 6.49%

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