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Choice of inventory costing method of selected companies in the Philippines.
Abstract:
This study aims to determine whether companies in different industries in the Philippines use different ending inventory valuation methods. Data were gathered from 26 companies that are engaged in retailing or manufacturing nonfood products, drugs and medicines, food and beverages, fast-food outlets and gasoline trading. Descriptive and inferential statistical analyses were conducted to determine significant relationships between the nature of their businesses and the ending inventory valuation method used. The findings of the study revealed that companies whose inventories are subject to obsolescence or expiration, use first-in-first-out (FIFO); companies whose inventories are subject to deterioration use FIFO; companies whose inventories are varied and whose costs of acquiring inventories are unstable use weighted average.

Article Type:
Survey
Subject:
Business enterprises (Surveys)
Inventories (Surveys)
Author:
Ibarra, Venus C.
Pub Date:
03/01/2008
Publication:
Name: Journal of International Business Research Publisher: The DreamCatchers Group, LLC Audience: Academic Format: Magazine/Journal Subject: Business, international Copyright: COPYRIGHT 2008 The DreamCatchers Group, LLC ISSN: 1544-0222
Issue:
Date: March, 2008 Source Volume: 7 Source Issue: 1
Product:
Product Code: 9912200 Venture Analysis; E450000 Inventories
Geographic:
Geographic Scope: Philippines Geographic Code: 9PHIL Philippines
Accession Number:
204419288
Full Text:
INTRODUCTION

Inventory is defined as a detailed, itemized list, report, or record of things in one's possession, especially a periodic survey of all goods and materials in stock. Inventories are essential for merchandising and manufacturing businesses. Inventories are the life of the business. Inventories are necessary in order to generate sales and, in return, sales generate profit for the business.

Inventories of retail businesses include goods purchased in final form with the intention of reselling them. The inventories of manufacturing companies include raw materials, goods in process and finished goods. The purchase prices of goods and raw materials vary. Keeping up records of numerous purchases is tedious and identifying the cost of specific product or goods sold is cumbersome if not impossible for companies engaged in manufacturing or retailing. The cost of the inventory at the end of an accounting period is crucial because of its effect on the cost of goods sold and ultimately on the computation of profits. The lower the cost of ending inventory, the higher is the cost of goods sold, and vice versa. Higher cost of goods sold will result in lower gross profit and vice versa. Therefore, the choice of inventory costing method has a significant effect on reported income.

A company uses either the perpetual or periodic inventory method to keep track of their inventory. The valuation method used to estimate the cost of the ending inventory varies; namely, specific-identification, first-in-first-out (FIFO), last-in-first-out (LIFO), and weighted average or simple average.

The kind of inventory valuation method chosen to determine the costs of ending inventory is one of the basic decisions all companies engaged in the manufacture and distribution of goods needs to make. Ideally, the method chosen should result in the best measure of a company's income and financial condition. However, there is no one method that is always best for accomplishing these objectives, and in an environment of changing prices, assumptions as to the flow of costs affect reported income, balance sheet amounts, and associated ratios. (White, Sondhi & Fried, 2003). The costs of inventories sold affect the income statement, while the costs of the unsold inventories affect the balance sheet.

Many studies have been conducted and published regarding inventory costing methods used by companies in the United States and in Europe. Most of these studies focused on two inventory methods--FIFO and LIFO.

Cushing and LeClere (1992) conducted a study entitled "Evidence on the Determinants of Inventory Accounting Policy Choice." The study aimed to develop a model that predicts the choice of inventory system through a comparison of long-time FIFO users with long-time LIFO users. The study considered eight factors that potentially affect inventory cost, which are as follows: estimated tax savings, inventory materiality, average tax loss carry forward, inventory level variability, inventory obsolescence, firm size, leverage, and current ratio.

The authors studied a database from COMPUSTAT of 175 FIFO firms and 48 LIFO firms with respect to the eight above-mentioned factors. The results show that in contrast to LIFO-using firms, FIFO-using firms have statistically significant "lower estimated tax savings as a percentage of sales, have larger average tax loss carry forwards, have greater variability in inventory levels, are smaller, are more leveraged and have lower current ratios." FIFO-using firms appear to have greater risks of inventory obsolescence.

The authors further performed regression analysis that incorporated the eight factors to determine predictors of inventory costing choice among the firms. The results indicated that estimated tax savings, inventory obsolescence, current ratio, and firm size were the correct significant predictors of LIFO/FIFO accounting choice. The inventory materiality variable had an unexpected negative sign in the regression. The prediction that a company will use LIFO if it has high inventory level is incorrect.

The study also included a survey of financial executives to determine their rationale for adopting either FIFO or LIFO inventory valuation. The results of the survey showed that the primary reason for using FIFO was for tax savings. The other reasons for using FIFO were: it reflected the actual physical flow of goods, it provided a more accurate inventory valuation on the balance sheet, it was less complex than using LIFO, it was the required method in government contracts, fast turnover of new products, and because foreign subsidiaries were sometimes not allowed to use LIFO.

Cushing and LeClere (1992) concluded that both tax and non-tax considerations influenced the choice of an inventory costing system and that a predictive model for inventory costing choice was still elusive.

Another study on choices of inventory valuation method was conducted by Chung and Narasimhan (2003) entitled "An Empirical Analysis of the Inventory Accounting Methods of U.S. Multinational Companies: Segment Effects." The researchers gathered data from the 2001 U.S. Disclosure database and analyzed 209 multinational companies in the United States. The study incorporated as control variables in their model the ratio of inventory to current assets (INVCA) and measures of debt exposure (LEV). Also integrated in the model were capitalization of assets (CAP), which is measured as a ratio of fixed assets to total assets, and a size variable (SIZE), using total sales revenue reported by the company as a measure.

The results of the study indicated that multinational companies generally chose LIFO for their inventory valuation method. When the amount of inventory increased compared to current assets, companies were more likely to use non-LIFO methods. Companies were more likely to use LIFO when sales increased. Likewise, as the amount of capitalized costs in fixed assets increased, the likelihood that companies will choose LIFO decreased. Companies with large debts were also less likely to use LIFO.

Other studies include Dopuch and Pincus (1988), which examined the differences in accounting numbers and accounting ratios of users of LIFO and FIFO methods. The comparison was made based on amounts reported in their financial statements. The results showed that the choice of LIFO method was more related to tax savings. Hunt (1995) examined the choices of companies that either continued to use FIFO or switched to LIFO during the high inflation period of 1974 and 1975. His study revealed that firms with high levels of debt were more likely to switch to LIFO method to show decreasing income. Finally, Kuo (1993) examined the factors affecting the choice of inventory method in small companies in United States. He concluded that as the size of a company increased, as measured by total sales, it is more likely that the company would use LIFO, while an increase in the debt to equity ratio had an inverse effect. Companies would tend to choose an income increasing method when debt increased due probably to the covenants placed in their debt contracts.

This study will be different from the studies mentioned above. This study does not aim to come up with a predictive model for companies' choice of inventory costing method. Rather, the objective is to look at a particular industry in the Philippine setting and to determine the choice and the rationale behind the choice of inventory costing method used.

To date, no study has been made on the inventory costing methods commonly used by companies in the Philippines. This study will help address that gap in our knowledge. This study will also be relevant to the accounting profession as it will allow the Accounting Standard Council, Board of Accountancy, and Philippine Institute of Certified Public Accountants (PICPA) to initiate additional rules/standards on inventory costing methods. Likewise, government agencies such as the Bureau of Internal Revenue (BIR) and Security and Exchange Commission (SEC) can be guided by the findings in establishing rules/regulations towards standardizing inventory reporting systems for different industries in the Philippines. International accounting standards will also benefit from this study. Rules and regulations on inventory evaluation methods currently being implemented may be reinforced by this study or reviewed for possible changes, as the case may be.

Inventory Costing Methods

Specific identification method is a common practice with certain big-ticket items such as automobiles and with unique items such as paintings, expensive jewelry, and custom-made furniture (Anthony, Hawkins, & Merchant, 2003). The number of inventory at the end is determined by actual count and the costs by existing record

The LIFO method assumes that the most recently purchased goods are sold first and that the oldest goods are in the ending inventory. The cost of goods sold is based on the cost of the most recent purchases, and the cost of the ending inventory is the cost of the oldest units available. The FIFO method assumes that the oldest goods are sold first and that the most recently purchased goods are in the ending inventory. The cost of goods sold is likely to approximate the physical flow of the goods because most companies sell their oldest merchandise first. The ending inventory approximates the current cost of the goods, since it is the cost of the most recent purchases. Average Cost method is the compromise between FIFO and LIFO methods. The average of the cost of goods available for sale is computed, and the units in both cost of goods sold and ending inventory are shown at this average cost. In the periodic inventory method this average is computed for the whole period. In the perpetual inventory method a new average is calculated after each purchase. In either case the average cost is representative of the cost of goods during the period at any given time . Accounting Standards

The Financial Reporting Standards (FRSs) are standards and interpretations adopted by the Accounting Standard Council (ASC). They consist of: the Philippine Financial Reporting Standards (PFRSs), corresponding to International Financial Reporting Standards (IFRSs); the Philippine Accounting Standards (PASs), corresponding to International Accounting Standards (IASs); and interpretations. The Accounting Standard Council (ASC) approved in November 2004 the adoption of International Accounting Standard (IAS) 2, Inventories, issued by the International Accounting Standards Board (IASB) as one of the Philippine financial reporting standards.

The IAS no longer allows the LIFO method of inventory costing. Specifically, IAS No. 2, paragraph 25 states that "The cost of inventories.... shall be assigned by using the first-in, first-out (FIFO) method or weighted average cost formula. An entity shall use the same cost formula for all inventories having a similar nature and use to the entity. For inventories with a different nature or use, different cost formulas may be justified."

The IASB argued that the LIFO method treats the newest items of inventory as being sold first, and consequently the items remaining in inventory are recognized as if they were the oldest. This is generally not a reliable representation of actual inventory flows. The use of LIFO in financial reporting is often tax-driven, because it resulted in costs of goods calculated using the most recent prices. The Board concluded that the LIFO method "reduces (increases) profits in a manner that tends to reflect that increased (decreased) prices would have on the cost of replacing inventories sold. However, this effect depends on the relationship between the prices of the most recent inventory acquisitions and the replacement cost at the end of the period. Thus, it is not truly a systematic method for determining the effect of changing prices on profits."

It must be pointed out that for financial reporting purposes, LIFO is no longer allowed in the Philippines. For tax purposes, a company can still use any of the four inventory costing methods. The Philippine Congress passes taxation legislation and no pronouncement on the use of or restrictions on inventory costing method has been made as of this time.

OBJECTIVES AND HYPOTHESES

The study's general aim is to determine the ending inventory costing methods being used by selected companies in the Philippines on the basis of their nature of business. Specifically, it seeks to answer the following hypotheses:

Ho: The use of LIFO in Philippine companies has no significant relationship with (or is independent of) saving taxes due to rising prices.

Ha: Philippine companies will use LIFO in times of rising prices to save on taxes.

Ho: There is no significant relationship between obsolescence of goods and LIFO as a choice of inventory method.

Ha: Companies whose inventories are subject to obsolescence or expiration use LIFO.

Ho: There is no significant relationship between perishability of goods and FIFO as a choice of inventory method.

Ha: Companies whose inventories are perishable use FIFO.

Ho: There is no significant relationship between variability of goods and weighted average as a choice of inventory method.

Ha: Companies whose inventories are varied use weighted average method.

Ho: There is no significant relationship between stability of cost of inventory and weighted average as a choice of inventory method.

Ha: Companies whose costs of acquiring inventories are not stable use weighted average method.

METHODOLOGY

The study used the descriptive-survey research method. This approach is appropriate because research sites have varied characteristics and conditions, which may differ among business firms. The method involves gathering of data first to prove the value of facts; and second, to focus attention on the most relevant information so that policy decisions can be arrived at scientifically. Data collection is from cross-sectional sample population to exemplify various companies using a particular type of inventory. Chi-square tests of independence were then conducted to determine if significant relationships exist between choice of inventory valuation and the industry these firms belong to.

Primary data were gathered from 26 companies. A list consisting of 161 companies listed in the Philippines Stock Exchange was initially used. The list was further limited to companies that are engaged in retailing or manufacturing nonfood products, drugs and medicines, food and beverages, fast-food outlets and gasoline. Out of 161 publicly listed companies only 22 firms qualified and only 13 companies out of the 22 agreed to be interviewed. The number of firms was doubled and the additional 13 firms were purposely selected due to time constraint. The additional firms were selected because of their location. Offices of these firms are in Metro Manila.

The respondents consist of Vice-Presidents for Finance, Controllers, Chief Accountants, managers, or warehouse supervisors who are knowledgeable in the inventory costing method used by the company. Only one respondent for each company was interviewed. Respondents were asked the kind of inventory costing methods their companies are currently using, and were also asked to elaborate on their choice and to give their rationale in using the method. The respondents requested that their names and the identity of their companies be withheld in this study.

The rationale in the choice of inventory costing method is influenced by the following factors:

1. Tax savings--the lower the cost of ending inventory, the higher is the cost of goods sold; therefore, the profit will be lower, likewise tax will be lower. In times of rising prices, LIFO will give a lower ending inventory.

2. Inventory obsolescence or subject to expiration--the tendency is for the buyers to purchase the most recent product. It is assumed that the ending inventory will be the cost of products purchased earlier or LIFO is applicable.

3. Inventory perishability--since goods are subject to spoilage, the seller will sell goods that were purchased or prepared earlier. It is assumed that the ending inventory will be the cost of the latest products purchased or FIFO inventory method is used by the seller.

4. Inventory variability--numerous inventories will make a company use the weighted average for easier recording and management.

5. Volatile acquisition cost of inventory or unstable prices will make a company use weighted average for easier recording.

One of the four companies engaged in manufacturing produces paper products, another is engaged in manufacturing footwear and sports apparel, another one manufactures beauty aids and personal care products, and the other company manufactures ceramics and other household fixtures. Since these products are variable, it is expected that the companies will use the weighted average method of costing their ending inventories.

One company engaged in retailing sells dry goods, while another retailing company is engaged in distributing medical devices, medical equipment, and other pharmaceutical products. These companies have products that are subject to obsolescence. Therefore, it is expected that the companies will use the LIFO inventory method.

Seven companies under food and beverage produce and/or retail agro-industrial products and commodity items like fruit juices, milk, ice cream, processed meat, flour, etc. Five companies are fast-food outlets that are commonly seen all over the country. These companies carry products that are highly perishable. It is expected that they will use FIFO in costing their ending inventory.

The companies classified under drugs and medicine manufacture pharmaceutical products, liquid and semi-liquid cosmetics, consumer healthcare products, and animal healthcare products. Drugs and medicines are subject to expiration. It is expected that these companies will also use the FIFO inventory method.

Finally, companies classified under "oil" are franchised gasoline outlets. This study will focus only on gasoline as their inventory. Prices of oil are volatile. The companies are expected to use the weighted average method.

RESULTS AND DISCUSSION

Table 2 shows the actual inventory costing method used by the surveyed companies. Although companies in the Philippines are given the option to use any of the four inventory valuation methods for tax purposes, no company had chosen LIFO. The cost of maintaining two accounting methods outweighs the savings a company gets in using LIFO only for tax purposes and another method to comply with the financial accounting standards according to two respondents belonging to manufacturing.

From Table 2, it can be seen that 16 out of 26 companies or 61.5% use FIFO while 10 use the weighted average method. At least one company in every industry surveyed uses the FIFO method. Food and beverage companies, as well as fast food outlets, used FIFO more often than the weighted average method, while companies engaged in drugs and medicine are evenly split in using the two methods. A majority of oil companies uses the weighted-average method.

Unlike the literature previously reviewed, this study cannot conduct regression analysis as no metric data (tax savings, value of inventory, sales, etc.) were gathered. Instead, chi-square tests of independence, a non-parametric statistical tool, were conducted to determine significant relationships between industry and inventory valuation method.

The use of either FIFO or weighted average method, when cross-tabulated with the companies' nature of businesses, yielded a chi-square statistic of 6.2934 which is less than the chi-square critical values of 9.236 and 11.071 at 10% and 5% levels of significance, respectively (at 5 degrees of freedom). Therefore, the null hypothesis that choice of inventory valuation is independent of the industry the companies belong to cannot be rejected, and it must be concluded that the choice of ending inventory valuation is not affected or dictated by the company's nature of business. The two variables appear to be independent of each other. (For the computation of this and succeeding chi-square values, see Appendix 1.)

Next, the study investigated whether the type of inventory is significantly related to a company's industry when choosing FIFO. Table 3 below presents the breakdown of 16 companies which chose FIFO as to their industry and type of inventory:

Companies consider perishability (56.2%) of their inventories as the major reason in choosing the FIFO inventory method, followed by variability and obsolescence (18.75% each). A small percentage (6.2%) considers unstable cost of acquiring their inventories in choosing FIFO.

Companies engaged in food, drugs and medicine consider perishability or life of their products as the main reason in considering FIFO. This is not surprising since their products are mostly consumables and are highly susceptible to spoilage. The companies believe that this method will match the actual flow of goods from the warehouse to the stores. They further maintain that FIFO provides the most accurate estimate of the costs of ending inventories

Businesses engaged in manufacturing, retailing and distribution of goods are divided between obsolescence and variability of their inventories as their rationale in choosing FIFO. These companies rely on fashion or fad or whims of the customers that make their products vulnerable to fast changes. The products they sell are highly seasonal. These types of goods are also subject to stiff competition. They feel that they are motivated by changes to sell faster and forecast the buyers' needs on time. These companies sell their earliest goods as soon as possible; otherwise, they suffer losses due to obsolescence. Accordingly, these companies do not think that they have huge inventories that are out of fashion or are obsolete because of technical changes. They believe that FIFO method will reflect the current costs of their ending inventories.

One oil company believes that FIFO reflects the true value of its ending inventory. This company, however, is contemplating a shift to the weighted average method since the price of oil is unstable.

Chi-square tests of independence on these 16 FIFO companies indicate that there exists a significant relationship between nature of business (or industry) and the reason for choosing FIFO (or type of inventory). The chi-square statistic of 32 is greater than the critical values of 22.307 and 24.996 at the 10% and 5% levels of significance at 15 degrees of freedom. At both levels of significance, we reject the null hypothesis of independence. The reason for choosing FIFO is dependent on one's industry.

Table 4 below shows the breakdown of the 10 companies which chose the weighted average method of inventory valuation, organized according to industry:

Majority of the companies consider unstable cost (60%) in acquiring their inventories as the major reason in choosing the weighted average method. During times when acquisition costs are uncertain this method is much simpler and safer to estimate ending inventory. Weighted average method will neither overestimate nor underestimate net income. Twenty percent use the weighted average method due to perishability of goods and another 20% due to variability of their products.

Food and beverage companies consider the perishability of their products and fluctuation of costs in acquiring food products in choosing weighted average. This is the most practical approach for food-related businesses because of the nature of their products.

Drug and medicine companies believe that weighted average is more convenient to use than any of the other methods, given that their products are made out of numerous raw materials.

Oil companies use weighted average because this is the most convenient method in times when there is uncertainty or instability in the price of oil. Inventories are adjusted every month because of large sales volume. Also, oil companies suffer losses in the process of delivery and pumping of oil. Losses are easier to compute using the weighted average method.

The chi-square tests on the ten companies that chose weighted average is significant at the 10% level (chi sq. = 12.222, critical value = 10.645, df = 6), but not at the 5% level (critical value = 12.592). Therefore, care must be taken before interpreting the relationship between industry and the use of the weighted average method.

SUMMARY OF FINDINGS

No company uses the LIFO method to save on taxes. Therefore, companies are in compliance with the IAS in the costing of their inventories.

Companies engaged in manufacturing, retailing or distributing merchandise use FIFO; majority of the companies engaged in food and beverage are using FIFO; companies engaged in drugs and medicine use either FIFO or weighted average; and most oil companies use the weighted average method.

Companies whose inventories are subject to obsolescence or expiration use the FIFO. Companies whose inventories are subject to deterioration or are easily perishable also use the FIFO.

Companies whose inventories are varied use either FIFO or weighted average method. Most companies whose costs of acquiring inventories are not stable use the weighted average method.

CONCLUSION

Companies' preferred inventory methods vary based on the type of goods that they manufacture and/or market. Obsolescence, perishability of merchandise, variability of merchandise and unstable acquisition costs of inventory are the reasons considered by companies in choosing the type of inventory costing method they use. Companies do not consider tax savings in choosing the type of inventory costing they use.

Since none of the surveyed companies are using LIFO, no conclusions can be made concerning the first two hypotheses of this study. But on the third hypothesis, we have established that a significant relationship exists between FIFO users and the perishable nature of their inventory (reject the null, accept the alternative hypothesis). Companies whose inventory is perishable are more likely to use the FIFO system. Similarly, where hypotheses four and five are concerned, it was established that there is a significant relationships between the nature of inventories and the use of the weighted average system. Tests show that at 10% significance, the null hypothesis has to be rejected and it must be concluded that companies with variable and unstable cost inventory are more likely to use the weighted average method of ending inventory valuation. These conclusions, however, cannot be maintained at the 5% level of significance.

APPENDIX: CHI-SQUARE TABLES

REFERENCES

Anthony, R., Hawkins, D. & Merchant, K. A. (2003). Accounting: Text and cases. 11th ed. New York: McGraw-Hill.

Chung, S. & Narasimhan, R. (2003, January). An empirical analysis of the inventory methods of U.S. multinational companies: Segment effects. Paper presented at the Seventh International Conference on Global Business and Economic Development, Bangkok, Thailand.

Cushing, B. E. & LeClere, M. J. (1992). Evidence on the determinants of inventory accounting policy choice. The Accounting Review, 67(2), p, 355-366.

Dopuch, N. & Pincus, M. (1988). Evidence in the choice of inventory method: LIFO versus FIFO. Journal of Accounting Research, 26(1), p. 28-59.

Hunt III, H. G. (1985). Potential determinants of corporate inventory accounting decisions. Journal of Accounting Research, 23(2), p. 448-465.

International Accountings Standards Board (2001). International accounting standards 2: Inventories. Delaware:.

Kuo, H. (1993). How do small firms make inventory accounting choices. Journal of Business Finance and Accounting, 20(3), p. 373-392.

White, G., Sondhi, A. & Fried, D. (2002). The analysis and use of financial statements. 3rd ed. New York: John Wiley..

Venus C. Ibarra, Ateneo de Manila University, San Pablo Colleges
1. INDUSTRY VS. INV. METHOD

                  FIFO   W. AVE.   TOTAL      FIFO         W. AVE.

MANUFACTURING      4        0        4     2.461538462   1.538461538
RETAIL             2        0        2     1.230769231   0.769230769
FOOD & BEVERAGE    4        3        7     4.307692308   2.692307692
FAST FOOD          3        2        5     3.076923077   1.923076923
DRUGS/MEDICINE     2        2        4     2.461538462   1.538461538
OIL                1        3        4     2.461538462   1.538461538
TOTAL              16      10       26

                     FIFO         W. AVE.

MANUFACTURING     0.961538462   1.538461538
RETAIL            0.480769231   0.769230769
FOOD & BEVERAGE   0.021978022   0.035164835   6.293392857
FAST FOOD         0.001923077   0.003076923
DRUGS/MEDICINE    0.086538462   0.138461538
OIL               0.867788462   1.388461538
TOTAL

2. FIFO VS. REASON

                  OBS.   PERISHABLE   VAR.   UNSTB.   TOTAL   OBS.

MANUFACTURING      2         0         2       0        4     0.75
RETAIL             1         0         1       0        2     0.38
FOOD & BEVERAGE    0         4         0       0        4     0.75
FAST FOOD          0         3         0       0        3     0.56
DRUGS/MEDICINE     0         2         0       0        2     0.38
OIL                0         0         0       1        1     0.19
TOTAL              3         9         3       1       16

                  PERISHABLE   VAR.   UNSTB.    OBS.

MANUFACTURING        2.25      0.75    0.25    2.0833
                                               33333
RETAIL              1.125      0.38   0.125    1.0416
                                               66667
FOOD & BEVERAGE      2.25      0.75    0.25     0.75
FAST FOOD           1.6875     0.56   0.1875   0.5625
DRUGS/MEDICINE      1.125      0.38   0.125    0.375
OIL                 0.5625     0.19   0.0625   0.1875
TOTAL

                  PERISHABLE     VAR.      UNSTB.

MANUFACTURING        2.25      2.08333      0.25
                                 3333
RETAIL              1.125      1.04166     0.125
                                 6667
FOOD & BEVERAGE     1.3611       0.75       0.25
                    11111
FAST FOOD           1.0208      0.5625     0.1875
                    33333
DRUGS/MEDICINE      0.6805      0.375      0.125
                    55556
OIL                 0.5625      0.1875     14.062
                                             5
TOTAL

3. WEIGHTED AVERAGE VS. REASON

                  PERISHABLE   VAR.   UNSTB.   TOTAL   PERISHABLE

FOOD & BEVERAGE       1         0       2        3        0.6
FAST FOOD             1         0       1        2        0.4
DRUGS/MEDICINE        0         2       0        2        0.4
OIL                   0         0       3        3        0.6
TOTAL                 2         2       6       10

                  VAR.   UNSTB.   PERISHABLE   VAR.   UNSTB.

FOOD & BEVERAGE   0.6     1.8       0.2666     0.6    0.0222
                                    66667              2222
FAST FOOD         0.4     1.2        0.9       0.4    0.0333
                                                       3333
DRUGS/MEDICINE    0.4     1.2        0.4       6.4     1.2     12.222
                                                                22222
OIL               0.6     1.8        0.6       0.6     0.8
TOTAL                               2.1666      8     2.0556
                                    66667              5556


Table 1

Respondents                 No.      Type of          Expected
                                    Inventory     Inventory Method

Companies Engaged in:
Manufacturing (other than
  food)                       4   Variable        Weighted average
Retailing                     2   Obsolescence          LIFO
Food and Beverages            7   Perishable            FIFO
Fast-Food                     5   Perishable            FIFO
Drugs and Medicine            4   Perishable            FIFO
Oil                           4   Volatile Cost   Weighted average
Total                        26

Table 2: Choices of Inventory Costing Method

Companies engaged in        LIFO    FIFO    WEIGHTED AVE.   TOTAL

Manufacturing (other than
  food)                      0       4            0           4
Retailing                    0       2            0           2
Food and Beverages           0       4            3           7
Fast-Food                    0       3            2           5
Drugs and Medicine           0       2            2           4
Oil                          0       1            3           4
Total                        0       16          10          26
Percentage                   0%    61.50%      38.50%       100%

Table 3

                                  Choice of FIFO

                                      Method         Rationale

Companies Engaged in:                Weighted      Obsolescence/
                                     average          Expire
Manufacturing (other than food)         4                2
Retailing                               2                1
Food and Beverages                      4                0
Fast-Food                               3                0
Drugs and Medicine                      2                0
Oil                                     1                0
Total                                   16               3
Percentage                             100%           18.75%

                                      Inventory Costing Method

Companies Engaged in:             Perishable   Variable   Unstable
                                                            Cost
Manufacturing (other than food)       0           2          0
Retailing                             0           1          0
Food and Beverages                    4           0          0
Fast-Food                             3           0          0
Drugs and Medicine                    2           0          0
Oil                                   0           0          1
Total                                 9           3          1
Percentage                          56.25%      18.75%     6.25%

Table 4: Choice of Weighted Average Inventory Costing Method

                                   Method      Rationale

Companies Engaged in:             Weighted   Obsolescence/
                                  average       Expire
Manufacturing (other than food)      0             0
Retailing                            0             0
Food and Beverages                   3             0
Fast-Food                            2             0
Drugs and Medicine                   2             0
Oil                                  3             0
Total                                10            0
Percentage                          100%           0

                                              Rationale

Companies Engaged in:             Perishable   Variable   Unstable
                                                            Cost
Manufacturing (other than food)       0           0          0
Retailing                             0           0          0
Food and Beverages                    1           0          2
Fast-Food                             1           0          1
Drugs and Medicine                    0           2          0
Oil                                   0           0          3
Total                                 2           2          6
Percentage                           20%         20%        60%
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