On December 1, Quality Electronics has three DVD players left in stock. All are
ID: 2452883 • Letter: O
Question
On December 1, Quality Electronics has three DVD players left in stock. All are identical, all are priced to sell at $99. One of the three DVD players left in stock, with serial #1012, was purchased on June 1 at a cost of $61. Another, with serial #1045, was purchased on November 1 for $56. The last player, serial #1056, was purchased on November 30 for $47. Calculate the cost of goods sold using the FIFO periodic inventory method, assuming that two of the three players were sold by the end of December, Quality Electronics' year-end. If Quality Electronics used the specific identification method instead of the FIFO method, how might it alter its earnings by "selectively choosing" which particular players to sell to the two customers? What would Quality's cost of goods sold be if the company wished to minimize earnings? Maximize earnings?Explanation / Answer
From the given Information:
1. Cost of goods sold using FIFO = Opening stock + Purchases - Closing stock
= 0 + ( 61+56+47 ) - 47
= $117
To Minimize earnings:
Cost of goods sold = Inventory sold having higher cost
= 61 +56
= $ 117
To Maximize earnings:
Cost of goods sold = Inventory sold having lower cost
= 56+47
= $103
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