Marian\'s Furs specializes in full-length mink coats. As of January 1, Marian ha

Question

Marian's Furs specializes in full-length mink coats. As of January 1, Marian had four top-of-the-line coats. Although the four coats are equivalent, they were purchased the previous year at different costs: Coat 1 - $8400 Coat 2 - $7100 Coat 3 - $7600 Coat 4 - $6800 During January a customer decided to buy any one of the mink coats for $12000. This was the only sale in January. A. If Marian wished to maximize January's profits and ending inventory, which of the minks would she have sold to the customer? Compute the gross profit of the sale and January's ending inventory. Discuss why Marian might wish to maximize profits and ending inventory. B. If Marian wished to minimize January's profits and ending inventory, which of the minks would she have sold to the customer? Compute the gross profit on the sale and January's ending inventory. Discuss why Marian might wish to minimize profits and ending inventory.

Explanation / Answer

If Marian wants to maximize profit:

He has to sell coat purchased at cost $6,800. In this case, profit will be optimum and ending inventory will at its highest value.

To present the financial statements in better way Marian may want to maximize profits and ending inventory.

If Marian wants to minimize profit:

He has to sell coat purchased at cost $8,400. In this case, profit will be least and ending inventory will at its lowest value.

To minimize tax burden Marian may want to maximize profits and ending inventory.

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