You are provided with the following information for Swag Diamonds Ltd. Swag only carries one brand and size of diamond-all are identical. Each batch of diamonds purchased is carefully coded and marked with its purchase cost.

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

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

5 Sold 170 diamonds for $800 each.

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

25 Sold 500 diamonds for $850 each.

Instructions

(a) Assuming that Swag Diamonds uses the specific identification method, do the following:

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

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

(b) Who are the stakeholders in this situation? Is there anything unethical in choosing which diamonds to sell in a month?

(c) Assuming that Swag Diamonds uses a perpetual inventory system and the average cost method, how much gross profit would Swag Diamonds report? (Round the average unit cost to the nearest cent-two decimal places.)

(d) Which method of cost determination-specific identification or average cost-should Swag Diamonds select? Explain.