Question
It is December 10 and Fraser Home Goods has four high-end microwave ovens in stock. All are identical, and each is priced at 200. The
It is December 10 and Fraser Home Goods has four high-end microwave ovens in stock. All are identical, and each is priced at 200. The four ovens were purchased on different dates and at different cost: Oven #1 was purchased on June 15 at a cost of 80; oven #2 on 3 August for 75; oven #3 on September 5 for 70; and oven #4 on 2 October for 65.
Required
a. Calculate the cost of goods sold using FIFO, assuming that three of the four ovens were sold before the end of the year.
b. If Fraser uses the specific identification method instead, how could it maximize earnings from the sale of the three ovens? How could it minimize earnings?
c. Which of these two methods is better, and why?
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