Reference no: EM132795919

Question - Ethics Case

Mar. 1 Beginning inventory consisted of 140 diamonds at a cost of $500 per diamond.

Discount Diamonds carries only one brand and size of diamond-all are therefore identical. Each batch of diamonds that is purchased is carefully coded and marked with its purchase cost. You are given the following data from March:

Mar. 3 Purchased 200 diamonds at a cost of $540 each.

Mar. 5 Sold 170 diamonds for $800 each.

Mar. 10Purchased 340 diamonds at a cost of $570 each.

Mar. 25 Sold 500 diamonds for $850 each.

Instructions -

(a) Assuming that the company uses the specific identification cost determination method, do the following:

1. Show how Discount Diamonds could maximize its gross profit for the month by choosing which diamonds to sell on March 5 and March 25.

2. Show how Discount Diamonds could minimize its gross profit for the month by choosing which diamonds to sell on March 5 and March 25.

(b) Assume that Discount Diamonds uses the average cost formula and a perpetual inventory system. How much gross profit would Discount Diamonds report under this cost formula?

(c) Who are the stakeholders in this situation? Is there anything unethical about using the specific identification cost determination and choosing which diamonds to sell?

(d) Should Discount Diamonds choose the average or specific identification method of inventory cost determination?