# Demonstrate how Princess Diamonds could maximize its gross profit for the month by specifically…

You have the following information for Princess Diamonds. Princess Diamonds uses the periodic method of accounting for its inventory transactions. Princess 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 150 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 350 diamonds at a cost of \$380 each.

March

25

Sold 400 diamonds for \$650 each.

Instructions

(a) Assume that Princess Diamonds uses the specific identification cost flow method.

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

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

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

(c) Assume that Princess Diamonds 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 Princess Diamonds select? Explain.