Calculating cost of goods sold under FIFO and specific identification
It is 10 December and Fraser Home Goods has four high-end microwave ovens in stock. All are identical, and each is priced at £200. The four ovens were purchased on different dates and at different cost: Oven #1 was purchased on 15 June at a cost of £80; oven #2 on 3 August for £75; oven #3 on 5 September for £70; and oven #4 on 2 October for £65.
Required
(a) Calculate the cost of goods sold using FIFO, assuming that three of the four ovens were sold before the end of the year.
(b) If Fraser uses the specific identification method instead, how could it maximize earnings from the sale of the three ovens? How could it minimize earnings?
(c) Which of these two methods is better, and why?
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