Problem 6-68BInventory Costing Methods

Objective 3Apply the four inventory costing methods to compute ending inventory and cost of goods sold under a perpetual inventory system.

4Analyze the financial reporting and tax effects of the various inventory costing methods.

6Evaluate inventory management using the gross profit and inventory turnover ratios.

Terpsichore Company uses a perpetual inventory system. For 2018 and 2019, Terpsichore has the following data:

Activity	Units	Purchase Price (per unit)	Sale Price (per unit)
2018
Beginning inventory	100	$45
Purchase 1, Feb. 25	700	52
Sale 1, Apr. 15	600		$90
Purchase 2, Aug. 30	500	56
Sale 2, Nov. 13	600		90
Purchase 3, Dec. 20	400	58
2019
Sale 3, Mar. 8	400		90
Purchase 4, June 28	900	62
Sale 4, Dec. 18	200		90

Required:

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

   Answer

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

   Answer

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.)

   Answer

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

5. CONCEPTUAL CONNECTION Which method produces the most realistic amount for income? For inventory? Explain your answer.

6. CONCEPTUAL CONNECTION Compute Terpsichores 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?

4&5 ARE THE ONLY ONES THAT NEED TO BE COMPLETED