Question

Fermeuse Motors Ltd. (Fermeuse) is a new car dealership. Fermeuse has four identical vehicles on its lot ready for sale. The cost of the cars and their vehicle identification numbers is:
VIN 2X346782N ....... $21,200
VIN 3K786281L........ 19,800
VIN 8T492711K........ 22,900
VIN 4U787412Q........ 20,150
Recently, a customer purchased one of the cars for $32,000 and will be picking it up in a few days. The customer will be indifferent to which car he receives.

Required:
a. If Fermeuse wanted to minimize its profit on this sale, which of the cars would it have sold to the customer? Calculate gross margin and ending inventory at the end of the period.
b. If Fermeuse wanted to maximize its profit on this sale, which of the cars would it have sold to the customer? Calculate gross margin and ending inventory at the end of the period.
c. What is the impact on ending inventory of your choices in (a) and (b) above? Under what circumstances might Fermeuse management want to maximize profit? Under what circumstances might it want to minimize profit? In reality, would it be possible for Fermeuse’s management to have the opportunity to manage the financial statements in this way? Explain.



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  • CreatedFebruary 26, 2015
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