Overview
This LIFO calculator can be used to calculate the leftover value of a company's inventory and cost of goods sold using the last-in-first-out method (LIFO). The LIFO inventory valuation method is one of several methods that are commonly used, such as the first-in-first-out (FIFO) method and the weighted average cost method. CFI's LIFO calculator utilizes a schedule of inventory purchases as inputs in order to determine the remaining inventory value and cost of goods sold. The inputs required by this calculator are the number of units sold, their purchase dates, the number of units purchased, and the price per unit purchased. Unlike the FIFO method, the LIFO method of inventory valuation is a less commonly used method of inventory valuation. This is because most firms tend to operate the same way the FIFO methods assumes. Typically, most firms would sell their older inventory stocks first to clear the way for new stock. This is especially important in businesses that sell perishable goods, such as grocery stores or restaurants. While it is less common, it is still important to understand the LIFO method. CFI's LIFO calculator will help you simplify this process as well. An example of a store that would use LIFO would be a pharmacy. Medical products often experience high levels of inflation in prices. To maintain pricing accuracy, pharmacies may report based on the most recent prices of their purchases. Thus, the oldest inventory stocks are those that stay on the balance sheet while the most recent ones are sold first. Here is an example of how to calculate inventory value using the LIFO method for a pharmacy.
• August 21, 2019: 50 capsules purchased at \$2.20/capsule
• August 22, 2019: 50 capsules purchased at \$2.45/capsule
• August 24, 2019: 50 capsules purchased at \$2.35/capsule
By August 26th, the pharmacy sold 115 pills. In order to calculate the remaining inventory value and the cost of goods sold, we can either use CFI's LIFO calculator or calculate it manually. Calculating it manually will help visualize how the LIFO method works.
• August 21, 2019: 15 capsules sold at \$2.20/capsule = \$33
• August 22, 2019: 50 capsules sold at \$2.45/capsule = \$122.5
• August 24, 2019: 50 capsules sold at \$2.35/capsule = \$117.5
The total cost of goods sold would be \$273 and the remaining inventory value 35 capusules*\$2.20/capsules = \$77. However, as mentioned, this method would be much simpler by inputting the purchase schedule shown above straight into CFI's LIFO calculator. Inventory valuation methods are essential accounting concepts for anybody working in finance. To learn more about accounting, check out CFI's Accounting Fundamentals course!
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