This FIFO calculator is used to determine the value of a company's inventory and cost of goods sold after a sales period using the first-in-first-out method (FIFO). The FIFO method is one of several common inventory valuation methods such as the last-in-first-out (LIFO) and weighted average cost methods.
This calculator uses four inputs: number of units sold, purchase date of units, number of units purchased, and price per unit purchased. With these inputs, the FIFO calculator is able to return the cost of goods sold based on the schedule of purchased goods provided.
As shown by the name of this method, the FIFO method assumes that the first inventory items purchased are also the ones that are sold first. Many stores operate with this inventory assumption but this is most prominent with stores that sell perishable goods. A grocery store is one of the most practical examples of the FIFO method.
Using this grocery store example we can take a look at a schedule of orange purchases:
- May 8, 2019: 100 oranges purchased at $1.15/orange
- May 9, 2019: 100 oranges purchased at $1.35/orange
- May 10, 2019: 100 oranges purchased at $1.10/orange
If by May 9th, the grocery store sold a total of 230 apples, what would its inventory value and COGS be?
Using CFI's FIFO Calculator this question would be quick to solve by inputting the information provided into the calculator.
However, breaking this down into a step-by-step calculation will also help visualize how the FIFO inventory valuation method works. The following breakdown shows the remaining oranges as well as what the cost of goods sold was for sales throughout this period.
- May 8, 2019: 100 oranges sold at $1.15/orange = $115 in COGS
- May 9, 2019: 100 oranges sold at $1.35/orange = $135 in COGS
- May 10, 2019: 30 oranges sold at $1.10/orange = $33 in COGS
Thus, the cost of goods sold for 230 apples would amount to a total of 115+135+33 = $283 and the remaining inventory value would be 70 oranges*$1.1/orange = $77.
The FIFO method is one of many inventory valuation methods that are covered in basic accounting. To learn more about accounting, check out CFI's Accounting Fundamentals course!