You have the following information for Wooderson Gems. Wooderson uses the periodic method of accounting for its inventory transactions. Wooderson only carries one brand and size of diamonds—all are identical. Each batch of diamonds purchased is care-fully coded and marked with its purchase cost.

March 1 Beginning inventory 150 diamonds at a cost of $310 per diamond.

March 3 Purchased 200 diamonds at a cost of $350 each.

March 5 Sold 180 diamonds for $600 each.

March10 Purchased 330 diamonds at a cost of $375 each.

March 25 Sold 390 diamonds for $650 each.

Instructions

(a) Assume that Wooderson Gems uses the specific identification cost flow method.

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

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

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

(c) Assume that Wooderson 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 Wooderson Gems select? Explain.