You have the following information for Limex Watches. Limex uses the periodic method of accounting for its inventory transactions. Limex carries only one brand of Hand crafted jeweled watches all are identical. Each batch of watches purchased is carefully coded and marked with its purchase cost.
July 1 Beginning inventory 220 watches at a cost of $420 per watch.
July 2 Purchased 200 watches at a cost of $450 each.
July 5 Sold 180 watches for $700 each.
July 14 Purchased 350 watches at a cost of $480 each.
July 28 Sold 480 watches for $720 each.
Instructions
(a) Assume that Limex uses the specific identification cost flow method.
(1) Demonstrate how Limex could maximize its gross profit for the month by specifically selecting which watches to sell on July 5 and July 28.
(2) Demonstrate how Limex could minimize its gross profit for the month by selecting which watches to sell on July 5 and July 28.
(b) Assume that Limex uses the FIFO cost flow assumption. Calculate cost of goods sold. How much gross profit would Limex report under this cost flow assumption?
(c) Assume that Limex 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 Limex Watches select? Explain.