Fifo Lifo Calculator

Fifo and Lifo

What do the accountancy terms FIFO and LIFO mean? The methods FIFO (First In First Out) and LIFO (Last In First Out) define methods used to gather inventory units and determine the Cost of Goods Sold (COGS).

Companies pick one of these methods based on their financial preferences. However, the profit volumes are impacted by the method selected.

What is Fifo?

FIFO definition:

           “FIFO stands for First In First Out. It means that the first inventory received will be sold first.”

In other words, an ascending order will be followed.

What is Lifo?

LIFO definition:

              “LIFO stands for Last In First Out. It means that the inventory will be sold in the opposite order as it was received.”

LIFO has the opposite functionality of FIFO. In other words, the inventory which was received in the last would be used first.

How to calculate FIFO and LIFO?

Fifo example:

Consider that there is a watch manufacturing company that gets its units for the last 6 months as follows.

• January 100 Units, $20 per unit
• February 150 units, $20 per unit
• March 150 Units, $25 per unit
• April 100 units, $25 per unit
• May 150 units, $30 per unit
• June 150 units, $25 per unit

Consider that the Cost of Goods Sold for 250 units has to be determined using FIFO

COGS (Cost of Goods Sold) \(= (100\times20) + (150\times20)\)

Cost of Goods Sold (FIFO) \(= 2000 + 3000\)

COGS (FIFO) \(= \$5000\)

In the above example, the cost of 250 units had to be determined. Thus, the first hundred units received in January and the remaining 150 from February were used.

Lifo Example:

Consider the example mentioned above to calculate COGS using LIFO.

• January, 100 Units, $20 per unit
• February, 150 units, $20 per unit
• March 150 Units, $25 per unit
• April 100 units, $25 per unit
• May 150 units, $30 per unit
• June 150 units, $25 per unit

Here, Calculate the cost of 250 units using LIFO.

Solution:

As compared to FIFO where we started in January, we will start in December in the case of LIFO. When this concept is followed, the value of COGS will be given as:

COGS \(= (150\times25 ) + (100\times30)\)

COGS \(= 3750 + 3000\)

COGS (LIFO) \(= 6750\)

In this example, we started from the units which were received most recently. Hence, the first 150 units were taken from June and the remaining 100 from May.

Fifo vs Lifo:

If you have a look at the cost of COGS  in LIFO, it is more than COGS in FIFO because the order in which the units have been consumed is not the same. In this example as well, we needed to determine the COGS of 250 units.

However, we started from the units which were received most recently. Hence, the first 150 units were taken from June and the remaining 100 from May.

Ending Inventory:

It is the actual amount of products that are available for sale at the end of an auditing period.

Also, the number of inventory units remains the same at the last of that period. And to calculate the ending inventory, the new purchases are added to it, minus the exact cost of goods sold.

This will provide the final result and if you want to calculate it within a single click, use the ending inventory calculator. 

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