FIFO (first in, first out)
FIFO is a way of costing stock that assumes the first units you bought are the first you sell, so each sale carries the cost of the oldest batch still on hand.
Updated
- Also called
- first in first out
Worked example
Two deliveries of the same throw:
| Batch | Units | Cost each |
|---|---|---|
| March | 100 | $19.80 |
| July | 300 | $21.40 |
You sell 150 units. Under FIFO the first 100 come from March and the next 50 from July:
100 × $19.80 + 50 × $21.40 = $3,050
The 250 units left are all from July, valued at $21.40 each.
Under weighted average the same 150 units would cost 150 × $21.00 = $3,150.
What it needs
FIFO keeps each batch separate with its remaining quantity, and reduces the oldest batch with every sale. That takes purchase receipts and stock movements, which is the territory of inventory and accounting systems.
A dated cost is not FIFO
Recording that a cost applies “from 1 July” switches every sale to the new cost on that date. FIFO would keep using the March cost until the March units were gone. For fast-moving stock the two are close. For slow stock they can differ for months, so if your accounts are on FIFO, treat a dated cost as a working figure for pricing and not as the accounting value.
Questions
- Does FIFO mean I must ship the oldest stock first?
- No. It is a costing assumption. Most stores do ship older stock first, which is why the assumption usually matches reality.
- What does FIFO do when prices are rising?
- Sales are matched with older, cheaper stock first, so reported cost of goods is lower and profit higher than under an average, until the older batches are used up.
- Does Cogsy support FIFO?
- No. FIFO needs the quantity in each batch received, and Cogsy records costs by date without stock quantities.
Related
Glossary
Weighted average costWeighted average cost blends the cost of stock on hand with the cost of new stock, by quantity. The formula, a worked example, and how it compares with FIFO.
Glossary
Cost of goods sold (COGS)COGS is the direct cost of the products you sold in a period. What it includes, what it leaves out, the formula, and a worked example for a Shopify store.
Glossary
Unit costUnit cost is what one unit of a product costs you to buy or make. How to calculate it for bought and made goods, and what belongs in it.