Question

On December 1, Marzion Electronics Ltd. has three DVD players left in stock. All are identical, all are priced to sell at $161. One of the three DVD players left in stock, with serial #1012, was purchased on June 1 at a cost of $113. Another, with serial #1045, was purchased on November 1 for $95. The last player, serial #1056, was purchased on November 30 for $88. 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, Marzion Electronics' year-end. The cost of goods sold If Marzion 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 Marzion's cost of goods sold be if the company wished to minimize earnings? Maximize earnings? Cost of goods sold would be if it wished to minimise the earnings. Cost of goods sold would be if it wished to maximise the earnings. Which of the two inventory methods do you recommend that Marzion use?

Answer 1

Answer:

Fifo means First in First out

                                                    CP                      SP

S # 1012 June 1           DVD           $113                 $161

S# 1045  Nov 1           DVD             $ 95               $ 161

Ss # 1056  Nov 30    DVD               $ 88               $ 161

Cost of Goods Sold ( using FIFO)   = $ 113+ $ 95=  $ 208

Weighted average method = Opening inventory +  Purchases (amount)/ Units

Weighted Average Method  CGS=  $ 296/3= $ 98.6= $ 99

The specific identification method would allow to record the prices individually. this method is better in this scenario because the balance sheet would record only the left out balance . the item is removed immediately as soon as the item is sold.

To minimise earnings FIFO is used because the inventory at the beginning has more cost price

To maximise earning LIFO is used because the inventory at the end has less cost price.

I recommend LIFO and specific identification method as both would get desired results. LIFO would give maximum profit and specific would be better in meeting the customers specific needs