First-In-First-Out (Cost of Goods)

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Definition: First-In-First-Out (Cost of Goods)

FIFO is one of the methods to account for the cost of goods or the cost of the inventory. It treats the inventory entering first to be consumed first. Hence the inventory remaining consists of the more recent items added to the inventory.

For example:

The inventory is added in the following order:

Lot 1: 1000 items at Rs. 5 per item

Lot 1: 1500 items at Rs. 4 per item

Lot 1: 2000 items at Rs. 6 per item

If 1600 items get consumed, their cost is calculated on the FIFO principle

Cost of goods = 1000*Rs.5+600*Rs.4 = 7400 Rs.

 

 

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