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

Activity Units Purchase Price

(per unit)

Sale Price

(per unit)

2008 Beginning Inventory 100 $45 Purchase, 2/25/2008 700 52 Sale, 4/15/2008 600 $90 Purchase, 8/30/2008 500 56 Sale, 11/13/2008 600 90 Purchase, 12/20/2008 400 58 2009 Sale, 3/8/2009 400 90 Purchase, 6/28/2009 900 62 Sale, 12/18/2009 800 90 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 Hartwell’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?