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.

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.

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Date of Purchase Jan. 7 Feb. 16 March 22 Total purchases Units 5,000 12,000 17,000 34,000 Unit Cost $4.00 4.50 5.00 Total Cost $ 20,000 54,000 85,000 $159,000