Ethical challen

EC 6-1 Diversion Inc. is a retail sports store carrying primarily women's golf apparel and equipment store is at the end of its second year of operations and, as new businesses often do, is struggling to be profitable. The cost of inventory items has increased just in the short time the store has has business. In the first year of operations the store accounted for inventory costs using the mo weighted average method. A loan agreement the store has with Dollar Bank, its prime source nancing, requires that the store maintain a certain gross profit and current ratio. The store's or Cindy Foor, is looking over Diversion's annual financial statements after year-end inventory has taken. The numbers are not very favourable and the only way the store can meet the required cial ratios agreed upon with the bank is to change from the moving weighted average to the method of inventory. Cindy originally decided upon moving weighted average for inventory co because she felt that moving weighted average yielded a better matching of costs to revenues. recalculates the ending inventory using FIFO and submits her income statement and balance sh the loan officer at the bank for the required bank review of the loan. As Cindy mails the fin statements to the bank, she thankfully reflects on the latitude she has as manager in choosing ventory costing method. Required 1. Why does Diversion's use of FIFO improve the gross profit ratio and current ratio? 2. Is the action by Diversion's owner ethical