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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A: Perpetual inventory system is the one whereby the inventory records are maintained on regular basis.

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A:

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A: The question is based on the concept of Cost Accounting.

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.