Dahunan, Ken Alvin H.

BSBA 311

Instructions: Read and analyze the scenario below. Write your answers in the spaces
provided.
 In the Interesting box, write down how each costing method would contribute
to achieving the main objective of Expedia Industries.
 In the My Decision box, write down your recommendation about the most
effective costing approach to 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 company's main objective is to establish a costing
procedure that will monitor the inflow and outflow of their raw materials relative to
their production of clothes. The company's board members have separate views on
employing the FIFO costing method or the Moving Average costing method.
According to most of them, their principal raw material, cotton, does not even have
an expiration date, and any of the most commonly used costing methods can be
useful in managing their inventories.

P.M.I Chart
Response 1: FIFO (First in, First out)
Plus (Advantages) Minus Plus (Advantages) Minus
(Disadvantages) (Disadvantages)

 Less waste (a business that really  It may not show an accurate

uses the FIFO approach will
always dispose of its oldest
inventory eventually).
 Money and time can be saved in
determining the precise cost of the
being sold as inventory.
 As a result, bookkeeping is simpler
and less prone to errors.
depiction of costs when material
prices rapidly increase.
 In times of hyperinflation, it might
not be the most effective strategy.
 When there is inflation, the stocks
might produce increased profit.

Interesting:
The FIFO method may significantly aid Expedia Industries in achieving their primary
goal because it will be easy for them to set up a system that will monitor their inflow
and outflow of raw materials since it can be said to be fast-paced when it comes to
releasing their products to the market and there is no high probability that there will be
a manipulation of income. Calculating the precise cost of the inventory being sold can
save time and money, similar to one of my examples in the benefits.
Dahunan, Ken Alvin H. BSBA 311

Response 2: Moving Average

Plus (Advantages) Minus (Disadvantages)

 For predicting long-term trends, it  Rapid price variations, which

can be quite helpful. frequently take place during
market reversal moments, are
 It can be calculated for any time harder to react too quickly.
frame.
 Time-consuming due to the
 It is really simple to comprehend constant recalculation of each
and calculate. inventory item following each
stock purchase.
 Keeping random variation
separate has several benefits.  Due to constant recalculation after
each transaction, the data are
constantly changing.
Interesting
The moving average method can help Expedia Industries accomplish their objective
since, as shown in my advantages list, it can be quite helpful for predicting long-term
trends. They can stock up because their main raw material, cotton, doesn't have an
expiration date, as was specified in the scenario. They may readily track and check
their inflow and outflow of cottons and other materials by employing the moving
average method.

My Decision
Because I believe it would help them more than the moving average, I would advise
Expedia Industries to use and apply the FIFO strategy. Although both approaches can
aid them in accomplishing their main goal, I believe the FIFO approach will be more
beneficial for them. They can store a lot in their storage area since cotton, their main
raw material, never expires, protecting them from the effects of inflation. Additionally,
by determining the precise cost of the product being sold, they can save time and
money. Compared to moving average, where you constantly need to calculate each
inventory item after every inventory purchase, there are less costs, less time, and less
labor obligations.