High Surf Company sells the Ultra-Light model wind surfer and uses the specific identification method to account for its inventory. The Ultra-Lights are identical except for identifying serial numbers. On 2009 August 1, the company had three Ultra-Lights that cost USD 14,000 each in its inventory. During the month, the company purchased the following:
|
Units |
Unit cost |
|
|
3-Aug |
5 |
@ $13,000 |
|
17-Aug |
6 |
@ $14,500 |
|
28-Aug |
6 |
@ 15,000 |
High Surf Company sold 13 Ultra-Lights in August at USD 20,000 each.
a. Compute the gross margin earned by the company in August if it shipped the units that would maximize gross margin.
b. Repeat part (a) assuming the company shipped the units that would minimize gross margin.
c. Do you think High Surf Company should be permitted to use the specific identification method of accounting for Ultra-Lights in view of the manipulation possible as shown by your calculations in (a) and (b)?