You have the following information for Rock Bottom Rocks. Rock Bottom uses the periodic method of accounting for its inventory transactions. Rock Bottom 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 200 diamonds at a cost of $300 per diamond.

March 3 Purchased 200 diamonds at a cost of $360 each.

March 5 Sold 180 diamonds for $600 each.

March 10 Purchased 330 diamonds at a cost of $375 each.

March 25 Sold 500 diamonds for $650 each.

Instructions

(a) Assume that Rock Bottom Rocks uses the specific identification cost flow method.

(1) Demonstrate how Rock Bottom could maximize its gross profit for the month by specifically selecting which diamonds to sell on March 5 and March 25.

(2) Demonstrate how Rock Bottom could minimize its gross profit for the month by selecting which diamonds to sell on March 5 and March 25.

(b) Assume that Rock Bottom uses the FIFO cost flow assumption. Calculate cost of goods sold. How much gross profit would Rock Bottom report under this cost flow assumption?

(c) Assume that Rock Bottom uses the LIFO cost flow assumption. Calculate cost of goods sold. How much gross profit would the company report under this cost flow assumption?

(d) Which cost flow method should Rock Bottom Rocks select? Explain.