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Expedia Industries is looking to establish a costing procedure to monitor raw material inflows and outflows for its clothing production. The company is considering either FIFO (first in, first out) or moving average costing. FIFO would help monitor raw materials using current inventory, but may exaggerate profits. Moving average costing is simpler to calculate and can smooth price fluctuations, making it the recommended approach.

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0% found this document useful (0 votes)

1K views1 page

02 Online Activity 1

Uploaded by

yuvia soriano

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BM1805

Name Yuvi B. Soriano Section BSBA201 Date Oct. 6, 2021

P-M-I CHART

Instructions: Read and analyze the scenario below. Write your answers on the spaces provided.

 In the Interesting box, write down how each costing method would contribute in achieving
the main objective of Expedia Industries. In the My Decision box, write down your
recommendation about the most effective costing approach that will resolve the problem in
the given scenario using one (1) between the two (2) costing methods being compared.

Scenario: Expedia Industries

Expedia Industries is the largest supplier and manufacturer of modern women’s clothing in the United
States. The main objective of the company is to establish a costing procedure that will monitor the
inflow and outflow of their raw materials relative in their production of clothes. The board members of
the company have separate views in employing FIFO costing method or the Moving Average costing
method since according to most of them, their major raw material which is cotton doesn’t even have an
expiration date, and any of the most commonly used costing methods can be useful in managing their
inventories.
Response 1: FIFO (First in, first out) Response 2: Moving Average

Plus (Advantages) Minus (Disadvantages) Plus (Advantages) Minus (Disadvantages)

 Inventory that is no  Exaggerate gross  Useful for forecasting  For each anticipated era,
longer in use is being margin, resulting in a inventories with it is vital to keep track of
reduced. false financial statement. consistent demand and the history of various
 Reduce impact of  Raises the risk of clerical seasonality when there is time periods.
Inflation errors a visible trend.  Disregards the data's
 Verify current ending  Can be used to separate mention of complex
inventory value, random variation. relationships.
which ensures the  Easy to understand and  Does not respond to
balance sheet's ending compute changes that occur for a
inventory reflects purpose, such as seasonal
current market values. affects and cycles.
Interesting Interesting
It will help with the monitoring of their raw material inflows and It will aid in the monitoring of their raw material intake and outflow
outflows because it uses current inventory rather than newer because it is simple to calculate due to the cost flow procedure of
inventory, therefore newer inventory will be used if there are any recalculating each inventory item after each inventory purchase.
changes.

My Decision
In my perspective, I prefer them for using moving average because the price of an item normally grows over
time, therefore older products have a lower cost than newer ones. The most effective way to smooth any price
fluctuations in a material is to determine the average unit cost of goods available for sale. When utilizing FIFO, the
valuation rate shows a greater value than the moving average. However, because it raises gross profit and
revenue, it also increases the company's tax liability.