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 5556Table 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%