P-M-I CHART

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.

FIFO Moving average

Plus Minus Plus Minus

This Is the largest The disadvantage of The advantage of using By Using moving
supplier and using FIFO is the moving average average the trend
manufacturer recognition of paper method It can be used values are not available
therefore there’s no profits and a heavier for measuring the for some periods at the
manipulation of tax burden if used for trend of any series, start and some values
income is possible, also tax purposes in periods when applying this at the end of the time
the balance sheet of inflation. method it is applicable series, therefore this
amount for inventory is to linear as well as non- method is not
likely to approximate linear trends. applicable to short
the current market time series.
value.
Interesting Interesting
The Interesting of using FIFO is the Expedia The Interesting about this is the most
industries cannot manipulate income by choosing straightforward calculation, the average price
which unit to ship because the cost of a unit sold over a chosen time period. It offers a smoothed
is not determined by a serial number. Instead, line, less prone to whipsawing up and down in
the cost attached to the unit sold is always the response to slight, temporary price swings back
oldest cost and applying FIIFO, purchases at the and forth. Therefore, it provides a more stable
end of the period have no effect on cost of goods level indicating support or resistance.
sold or net income.

My Decision
My recommendation about the most effective costing approach that will resolve the problem of
Expedia Industry, is to use FIFO method because it will be easier to calculate the data where in the
first in and first out method, because 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, therefore it will be easy to use inside of inventory. The purchases at the end of the period
have no effect on cost of goods sold or net income.