Topanga Group began operations early in 2024. Inventory purchase information for the quarter ended March 31, 2024, 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: Calculate Topanga’s gross profit ratio for the first quarter using: FIFO LIFO Average cost Comment on the relative effect of each of the three inventory methods on the gross profit ratio.

FINANCIAL ACCOUNTING
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Author:Libby
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Chapter1: Financial Statements And Business Decisions
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8–6

Various inventory costing methods; gross profit ratio

● LO8–1, LO8–4, LO8–7

Topanga Group began operations early in 2024. Inventory purchase information for the quarter ended March 31, 2024, 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:

Calculate Topanga’s gross profit ratio for the first quarter using:

FIFO

LIFO

Average cost

Comment on the relative effect of each of the three inventory methods on the gross profit ratio.

 

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