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Calculate the topanga gross profit ratio

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Question - Topanga Group began operations early in 2011. Inventory purchase information for the quarter ended March 31, 2011, 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 Unit Cost Total cost

Jan 7 5000 $4.00 $20000

Feb 16 12,000 4.50 54,000

March 22 17,000 5.00 85,000

Totals 34000 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 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.

Reference no: EM131815434

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