Elise is the cost analyst at Canadian Steel Tube and Wire Company which manufactures pup joints. Oil-country tubular goods pup joints are made of carbon or alloy steel; welded or seamless; heat-treated or not heat-treated; varyingly finished with an outside diameter from 2 3/8 inches to 4 1/2 inches (60.3 mm to 114.3 mm) and in lengths from 2 feet to 12 feet (61 cm to 366 cm).
On July 22, 2015, the Canada Border Services Agency (CBSA) received a written com- plaint from Canadian Steel Tube and Wire Company (hereafter, "the Complainant") alleging that imports of certain pup joints originating in or exported from the People's Republic of China (China) are being dumped and subsidized and causing injury to the Canadian industry.
On August 12, 2015, pursuant to subsection 32(1) of the Special Import Measures Act (SIMA), the CBSA informed the Complainant that the complaint was properly documented. The CBSA also notified the government of China (GOC) that a properly documented complaint had been received and provided the GOC with the non-confidential version of the subsidy portion of the complaint, which excluded sections dealing with normal value, export price, and margin of dumping.
The Complainant provided evidence to support the allegations that certain pup joints from China have been dumped and subsidized. The evidence also disclosed a reasonable indication that the dumping and subsidizing had caused injury and are threatening to cause injury to the Canadian industry producing these goods.
The CBSA has asked Canadian Steel Tube and Wire Company to provide further and more substantive evidence of injury caused by the dumping and subsidization of foreign manufactured pup joints. For the purpose of this investigation, injury can be demonstrated by evidence of lower production levels and/or proof of idle manufacturing assets, lower sales, lower profit, or employee downsizing.
Evidence of injury may have dramatic consequences because it will inform the CBSA investigation as to how much antidumping relief (in the form of tariff-based penalties on dumped and subsidized goods) it should award Canadian pup joint manufacturers for a period of five years. The greater the injury evidenced, the more the relief and the greater the economic advantage enjoyed by Canadian Steel Tube and Wire Company for the next five years.
On December 12, 2015, Elise is continuing to oversee the process-costing method using the FIFO method. Senior management, which has fixated upon providing injury evidence by showing lower profits, suspect that the FIFO method is hiding the extent of injury by understating the cost of goods sold (COGS) and thereby overstating gross profit and net income.
Management is asking Elise to advise whether COGS would be increased or decreased by switching to weighted average process costing.
While all this is happening, due to the glut of pup joints caused by foreign dumping, demand for the manufacturing inputs for pup joints has fallen significantly by one-half. The drop in Canadian manufacturer demand for pup joint inputs has caused a similarly significant decline in the price of pup joint inputs. This drop in price has helped lower input costs for Canadian Steel Tube and Wire Company over the past year. However, due to slow sales, 75 percent of pup joint input raw materials on hand were purchased before the drop in prices.
Between September and November 2015, 30 percent of the pup joint input inventory on hand was used in the manufacture of completed and sold pup joints.
Required:
Given the information above, which process costing method would provide greater evidence of injury for Canadian Steel Tube and Wire Company?