Calculate Fifo Cost of Goods Sold

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Reviewed and Verified by Sarah Miller, CPA, CMA.

The FIFO Cost of Goods Sold Calculator helps you determine the expense of inventory sold, assuming the oldest inventory items are sold first. This method is crucial for accurate financial reporting and inventory valuation, especially when product costs fluctuate.

FIFO Cost of Goods Sold Calculator

Calculated FIFO Cost of Goods Sold (COGS)

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FIFO Cost of Goods Sold Formula

FIFO COGS = Cost of Oldest Inventory Units Sold This is a conceptual formula. The actual calculation involves tracking specific inventory lots.

Under the First-In, First-Out (FIFO) method, the cost assigned to goods sold is the cost of the oldest inventory items remaining in stock. The calculation relies on tracing the unit cost of each purchase layer.

Formula Source: Investopedia – FIFO, AccountingTools – FIFO Method

Variables

  • Total Units Sold: The total number of units the business sold during the period.
  • Units in Lot (N): The number of units purchased in a specific inventory lot.
  • Cost per Unit in Lot (N): The cost paid for each unit in that specific lot.
  • FIFO COGS: The resulting total cost assigned to the goods that were sold.

What is FIFO Cost of Goods Sold?

The FIFO (First-In, First-Out) method of inventory valuation assumes that the earliest goods purchased are the first goods to be sold. This is often the most logical and physically accurate method for many businesses, especially those dealing with perishable goods or items with short shelf lives.

The primary impact of FIFO is on the Cost of Goods Sold (COGS) and the value of Ending Inventory. In an inflationary environment (where costs are rising), FIFO results in a lower COGS and a higher Net Income, because the COGS is based on the older, lower costs. Conversely, the ending inventory value is higher because it consists of the newer, higher-cost items.

How to Calculate FIFO Cost of Goods Sold (Example)

Assume a company sold 500 units and had the following purchases: Lot 1 (200 units @ $10), Lot 2 (300 units @ $12), Lot 3 (100 units @ $15).

  1. Determine the oldest inventory: Start with Lot 1 (200 units @ $10).
  2. Sell Lot 1: Consume all 200 units from Lot 1. COGS = 200 units * $10.00 = $2,000.
  3. Calculate remaining units sold: 500 total units sold – 200 units (from Lot 1) = 300 units remaining to be costed.
  4. Move to the next oldest inventory: Use Lot 2 (300 units @ $12).
  5. Sell Lot 2: Consume all 300 remaining units from Lot 2. COGS = 300 units * $12.00 = $3,600.
  6. Calculate Final COGS: Sum the costs from each lot consumed. $2,000 (Lot 1) + $3,600 (Lot 2) = $5,600. (In this example, Lot 3 remains in ending inventory).

Related Calculators

Weighted Average Cost Inventory Calculator LIFO COGS Estimator Gross Profit Margin Calculator Inventory Turnover Ratio Calculator

Frequently Asked Questions (FAQ)

Does FIFO generally result in higher or lower COGS during inflation?
FIFO generally results in a lower COGS during periods of inflation. This is because the older, less expensive inventory costs are matched against current sales revenue.

How does FIFO affect ending inventory?
Under FIFO, the ending inventory is valued at the cost of the most recent purchases (the newest, typically more expensive items), resulting in a higher ending inventory value on the balance sheet.

Is FIFO allowed under IFRS and GAAP?
Yes, FIFO is permitted under both International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP). However, LIFO (Last-In, First-Out) is prohibited under IFRS.

When should I use FIFO instead of LIFO or Weighted Average?
FIFO is preferred when inventory turnover is high, the inventory consists of perishable goods (where selling the oldest stock first is logical), or when you want your financial statements to reflect a closer match to the actual physical flow of goods.

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