Gavin Products uses a perpetual inventory system. For 2010 and 2011, Gavin has the following data: Required:

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Gavin Products uses a perpetual inventory system. For 2010 and 2011, Gavin has the following data:
Gavin Products uses a perpetual inventory system. For 2010 and

Required:
1. For each year, compute cost of goods sold, the cost of ending inventory, and gross margin using FIFO.
2. For each year, compute cost of goods sold, the cost of ending inventory, and gross margin using LIFO.
3. For each year, compute cost of goods sold, the cost of ending inventory, and gross margin using the average cost method. (Note: Use four decimal places for per-unit calculations and round all other numbers to the nearest dollar.)
4. Which method would result in the lowest amount paid for taxes?
5. Which method produces the most realistic amount for income? For inventory? Explain your answer.
6. Compute Gavin€™s gross profit ratio and inventory turnover ratio under each of the three inventory costing methods. (Note: Round answers to two decimal places.) How would the choice of inventory costing method affect these ratios?

Inventory Turnover Ratio
Inventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally.    Inventory Turnover Ratio FormulaWhere,...
Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula                Ending Inventory Formula =...
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Cornerstones of Financial and Managerial Accounting

ISBN: 978-1111879044

2nd edition

Authors: Rich, Jeff Jones, Dan Heitger, Maryanne Mowen, Don Hansen

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