INVENTORY COSTING METHODS Gavin Products uses a perpetual inventory system. For 2008 and 2009, Gavin has the following data:

Activity Units Purchase Price

(per unit)

Sale Price

(per unit)

2008 Beginning Inventory 200 $ 9.00 Purchase, 2/15/2008 300 11.00 Sale, 3/10/2008 320 $25.00 Purchase, 9/15/2008 500 12.00 Sale, 11/3/2008 550 25.00 Purchase 12/20/2008 150 13.00 2009 Sale, 4/4/2009 200 25.00 Purchase, 6/25/2009 200 14.00 Sale, 12/18/2009 150 25.00 Required:

. For each year, compute cost of goods sold, the cost of ending inventory, and gross margin using FIFO.

. For each year, compute cost of goods sold, the cost of ending inventory, and gross margin using LIFO.

. For each year, compute cost of goods sold, the cost of ending inventory, and gross margin using the average cost method. (Use four decimal places for per unit calculations and round all other numbers to the nearest dollar.)

. Which method would result in the lowest amount paid for taxes?

. Which method produces the most realistic amount for income? For inventory?

Explain your answer.

. Compute Gavin’s gross profit ratio and inventory turnover ratio under each of the three inventory costing methods. How would the choice of inventory costing method affect these ratios?