Topanga Group began operations early in 2018. Inventory purchase information for
ID: 2568538 • Letter: T
Question
Topanga Group began operations early in 2018. Inventory purchase information for the quarter ended March 31, 2018, for Topanga's only product is provided below. The unit costs include the cost of freight. The company uses a periodic inventory system. Units 8,000 29,000 Unit Cost 5.00 6.00 7.00 Total Cost $ 40,00e 174,00e 231,000 445,000 Date of Purchase an Feb. 16 March 22 Totals 70,000 Sales for the quarter, all at $10 per unit, totaled 40,000 units leaving 30,000 units on hand at the end of the quarter uired 1. Calculate Topanga's cost of goods sold for the first quarter using a. FIFO b. LIFO c. Average cost 2. ulate Toponga's gross profit ratio for the first quarter using FIFO, LIFO, and Average cost. 3·domment on the relative effect of each of the three inventory methods on the gross profit ratio Complete this question by entering your answers in the tabs below Req 1A Req 1B Req 1C Req 2 Req 3 Calculate Topanga's cost of goods sold for the first quarter using FIFO Cost of Goods Available for Sale Cost of Goods Sold - Periodic FIFO Ending Inventory - Periodic FIFo # of units | Cost per FIFO: |# of units | sold | # of units Cost per costof Goods Cost per Cost of Ending Available for Sale unit unit Goods Sold|in ending Inventory unit inventory 0.00S S 0.00S Beginning Inventory Purchases January 7 February 16 March 22 0.00 S 0.00 S 0.00 S 0.00 S 0.00 S 0.00Explanation / Answer
1.(a) FIFO Method-
DOP
Units
Consumed for Sales
Balance Units
Unit Cost (Value in $)
Total Cost –Closing Stock (Value in $)
Jan 7
8,000
8,000
-
5
-
Feb 16
29,000
29,000
-
6
-
Mar 22
33,000
3,000
30,000
7
2,10,000
Total
70,000
30,000
2,10,000
1.(b) LIFO Method-
DOP
Units
Consumed for Sales
Balance Units
Unit Cost (Value in $)
Total Cost –Closing Stock (Value in $)
Mar 22
33,000
33,000
-
5
-
Feb 16
29,000
7,000
22,000
6
1,32,000
Jan 7
8,000
-
8,000
7
56,000
Total
70,000
30,000
1,88,000
1.(c)
Average Method-:
Closing Stock=(Total Cost of Purchases/Total Units)* Balance no. of Units
(4,45,000/70,000)*30000 units = $1,90,714.29
2.Gross Profit Ratio = (Gross Profit/ Net Sales)*100
Gross Profit-: Sales + Closing Stock – (Opening Stock + Purchases + Direct Expenses)
Gross Profit Calculation-:
a.FIFO Method- 4,00,000+ 2,10,000 – ( 0 + 4,45,000 + 0)= $ 1,65,000
b.LIFO Method- 4,00,000+ 1,88,000 – ( 0 + 4,45,000 + 0)= $ 1,43,000
c.Average Cost Method- - 4,00,000+ 1,90,714.29 – ( 0 + 4,45,000 + 0)=$ 1,45,714.29
a.GP Ratio under FIFO- (1,65,000/4,00,000) *100 = 41.25%
b.GP Ratio under LIFO- (1,43,000/4,00,000)*100 = 35.75%
c.GP Ratio under Average Cost- (1,45,714.29/4,00,000)= 36.43%
3. The GP Ratio under FIFO method is more as compared to LIFO since the value of closing stock under LIFO is less compared to value of closing stock as per FIFO method. The average cost method balances the purchase rates throughout the Quarter .
DOP
Units
Consumed for Sales
Balance Units
Unit Cost (Value in $)
Total Cost –Closing Stock (Value in $)
Jan 7
8,000
8,000
-
5
-
Feb 16
29,000
29,000
-
6
-
Mar 22
33,000
3,000
30,000
7
2,10,000
Total
70,000
30,000
2,10,000