Problem 6-6A You have the following information for Wooderson Gems. Wooderson us
ID: 2337499 • Letter: P
Question
Problem 6-6A You have the following information for Wooderson Gems. Wooderson uses the periodic method of accounting for its inventory transactions. Wooderson only carries one brand and size of diamonds-all are identical. Each batch of diamonds purchased is carefully coded and marked with its purchase cost. March 1 Beginning inventory 226 diamonds at a cost of $467 per diamond. March 3 Purchased 301 diamonds at a cost of $527 each March 5 Sold 271 diamonds for $903 each. March 10 Purchased 497 diamonds at a cost of $564 each March 25 Sold 587 diamonds for $978 each. Assume that Wooderson Gems uses the specific identification cost flow method. (1) Demonstrate how Wooderson could maximize its gross profit for the month by specifically selecting which diamonds to sell on March 5 and March 25 (2) Demonstrate how Wooderson could minimize its gross profit for the month by selecting which diamonds to sell on March 5 and March 25 To maximize gross profit, Wooderson Gems should sell the diamonds with the (highest cost. To minimize gross profit, Wooderson Gems should sell the diamonds withteloetcost. SHOW LIST OF ACCOUNTS Assume that Wooderson uses the FIFO cost flow assumption. Calculate cost of goods sold. How much gross profit would the company report under this cost flow assumption? Cost of goods sold Gross profitExplanation / Answer
FIFO
FIFO
Date Puchases Per unit cost Date Sold(units) COGS(A) 1-Mar 226 467 5-Mar 226 105542 3-Mar 301 527 5-Mar 45 23715 527 271 129257 Total Sales=271*903 244713 Cost of Good Sold(A) 129257 Gross profit(A) 115456 Date Remaining unsold/ Puchases Per unit cost Date Sold(units) COGS(B) 1-Mar 0 467 25-Mar 0 0 3-Mar 256 527 25-Mar 256 134912 10-Mar 497 564 25-Mar 331 186684 753 576 321596 Total Sales=587*978 574086 Cost of Good Sold (B) 321596 Gross profit(B) 252490 Cost of Good sold (129257+321596) 450853 Gross Profit (115456+252490) 367946