On December 1, Kiyak Electronics Ltd. has three DVD players left in stock. All are identical, all are priced to sell at $150. One of the three DVD players left in stock, with serial #1012, was purchased on june 1 at a cost of $100. Another, with serial #1045, was purchased on November 1 for $88. the last player, serial #1056, was purchased on November 30 for $80.
Instructions
- 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, Kiyak Electronics year-end.
- If Kiyak 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 ethe two customers? What would Kiyak's cost of goods sold be if the company wished to minimize earnings? Maximize earnings?
- Which of the two inventory methods do you recommend that Kiyak use? Explain why.
Solution
a.
Cost of goods sold = $100 + $88 = $188
b.
In this case, new cost of goods sold = $88 + $80 = $168
For minimizing earnings, cost of goods sold = $100 + $88 = $188
For maximizing earnings, cost of goods sold = $88 + $80 = $168
c.
We recommend the LIFO method for maximizing earnings