Definition and Explanation:

The first in first out (FIFO) method of costing is used to

introduce the subject of materials costing. The FIFO

method of costing issued materials follows the principle that

materials used should carry the actual experienced cost of the specific units used.

The methods assume that materials are issued from the oldest supply in stock
and that the cost of those units when placed in stock is the cost of those same units when issued.

However, FIFO costing may be used even though physical withdrawal is in a

different order.

Advantages of First in First out (FIFO) Method:

Advantages claimed for first in first (FIFO) out costing

method are:

1. Materials used are drawn from the cost record in a logical and systematic
manner.

2. Movement of materials in a continuous, orderly, single file manner

represents a condition necessary to and consistent with efficient materials

control, particularly for materials subject to deterioration, decay and

quality are style changes.

Disadvantages of FIFO Method:

FIFO method is definitely awkward if frequent purchases are made at different

prices and if units from several purchases are on hand at the same time. Added costing
difficulties arise when returns to vendors or to the storeroom occur.
Advantages:
Plastic covers are laid over the soil surface to hold in moisture and prevent weed growth.
Usually top-dressed with
Another mulch. Some products are porous.
Disadvantages:
If the product isn't porous, plant roots can suffocate and rot.
Advantages:
The material is considered permanent because it doesn't decompose or blow or wash
away. Insects avoid this material,
and it doesn't sink into the ground like gravel or rocks. Comes in many colors.
Disadvantages:
Some products give off a strong odor. It's hard to find locally.
Advantages:
Used for color, texture and stability. Creates a permanent cover. All rocks are fire-resistant.
These products don't break down in the soil.

Disadvantages:
Smaller pebbles may sink into the soil after time. Some rocks are hard to keep clean.
Moving this type of mulch is heavy work.
Advantages of Last in First out (LIFO) Method:
The advantages of the last in first out method are:
Materials consumed are priced in a systematic and realistic manner. It is argued that current
acquisition costs are incurred for the purpose of meeting current production and sales
requirements; therefore, the most recent costs should be charged against current production and
sales.
Unrealized inventory gains and losses are minimized, and reported operating profits are
stabilized in industries subject to sharp materials price fluctuations.
Inflationary prices of recent purchases are charged to operations in periods of rising prices, Thus
reducing profits, resulting in a tax saving, and therewith providing a cash advantage through
deferral of income tax payments. The tax deferral creates additional working capital as long as
the economy continues to experience an annual inflation rate increase.
Disadvantages of First In Last out (LIFO) Method:
The disadvantages or limitations of the last in first out costing method are:
1. The election of last in first out for income tax purposes is binding for all subsequent
years unless a change is authorized or required by the Internal Revenue Service (IRS)
2. This is a "cost only" method with no right down to the lower of cost or market allowed
for income tax purposes. Furthermore, the IRS requires that when last in first out is
adapted an adjustment must be made to restore any previous right downs from actual
cost. Should the market decline below LIFO cost in subsequent years, the business would
be at a tax disadvantage. When prices drop the only option may be to charge off the older
 (higher) cost by liquidating the inventory, however, liquidation for income tax purposes
must take place at the end of the year. According to IRS regulations, liquidation during
the fiscal year is not acceptable if the inventory returns to its original level at the end of
the year. Interim external financial reporting principles impose a similar requirement
when inventory is expected to be replaced by the end of the annual period.
3. LIFO must be used in financial statements if it is elected for income tax purposes.
However, for financial reporting purposes, the lower of LIFO cost or market can be used
without violating IRS LIFO conformity rules.
4. Record keeping requirements under this method, as well as FIFO, are substantially
greater than those under alternative costing and pricing methods.
5. Inventories may be depleted due to unavailability of materials to the point of consuming
inventories costed at older or perhaps the oldest prices. This situation will create a miss
matching of current revenue and cost, sometimes companies using this costing method
counteract this problem by establishing an allowance for replacement of the LIFO
inventory account. Cost of goods sold is charged with current cost. The allowance
account is credited for the access of the current replacement cost over the LIFO carrying
cost for the inventory temporarily liquidated. When this inventory is replenished, the
temporary allowance (credit) is removed and the goods acquired are placed in inventory
at their old last in first out cost.
6. In standard number 411 "accounting for acquisition costs of materials, " the cost
accounting standards board "CASB" precludes the use of LIFO except when applied
currently on a specific identification basis. As a result, the use of this method, when an
annual LIFO adjustment is made, is ruled out for government contracts to which CASB
regulations apply.
The decision to adopt the last in first out method has had increased appeal in the last few years,
due to an accelerated rate of inflation; however its adoption should not be automatic. Long range
effects as well as short term benefits must be considered.

Average Advantages Method:

Advantages:
Attractive-looking, inexpensive and long-lasting. Chips are easy to apply
Advantages:
Slow to decompose and generally lasts a year or more. Bark can be bought in different sizes,
ranging from a fine grind
Advantages:
Generally free to the public and can be picked up from local landfills
Advantages:
Popularly called red mulch. It's long-lasting and available in a variety of colors. The chips are
dyed to match pine, hardwood, cypress or other mulch products. Wood chips don't blow away
easily
Advantages:
 Excellent mulch because of its long-lasting qualities. This mulch also helps with the eradication
of this
invasive tree. Laboratory tests show termites don't like melaleuca. The product is sold under the
name Florimulch.
Advantages:
Free and adds nutrients to the soil. Grass clippings should be cut before seeds have ripened and
should be applied dry.
Pine needles are good for acid-loving plants, such as azaleas, gardenias and hydrangeas.

Advantages:
It's full of nutrients that are beneficial to plants.
Advantages:
Feed-quality hay is popular in gardens, inexpensive and can be tilled into garden beds after
harvest.

Average disadvantages method:

Disadvantages:
Gardening experts with Florida Yards & Neighborhoods, a program of the Florida
Cooperative Extension Service, do not recommend using this type of mulch because its harvest
depletes cypress wetlands.
Disadvantages:
Large chunks can float away from the mulched surface. Mulch can lower soil pH slightly.
Disadvantages:
This type of mulch can decompose rapidly because of sawdust content in the mulch, and it
may contain weed seed. If
there's a lot of fresh organic matter in the mulch, the area should be supplemented with fertilizer.
Disadvantages:
While some manufacturers use only indigenous hardwoods, others mix a variety of woods
along with construction debris that might include pressure-treated lumber. This material also
decomposes faster than bark and requires the addition of nitrogen fertilizer.
Disadvantages:
Hard to find locally. Forestry Resources in Fort Myers produces and sells this mulch
product.
Disadvantages:
Can spread weed seeds; not as uniformly attractive as other mulches.
Disadvantages:
It takes time for compost materials to decompose and be ready for use; but once in use,
compost decomposes faster than pine bark, cypress and wood chips.