FIFO Calculations

The FIFO costing method assumes that the first inventory items purchased are the first ones sold. This method results in an ending inventory balance based on the costs associated with the most recent purchases. The allocated ending inventory and value become the opening inventory for the next period.

Suppose that you apply the FIFO costing method to four receipts that include five items each. This table lists the price that you paid for each receipt:

Receipt Number	Amount
Receipt 1	1.00 USD
Receipt 2	1.50 USD
Receipt 3	2.00 USD
Receipt 4	2.50 USD

The total value of the inventory is 35.00 USD, which you calculate using this equation:

(1 × 5) + (1.5 × 5) + (2 × 5) + (2.5 × 5) = 35.00

Suppose that you are using the FIFO costing method and you sell five items for 1.00 USD each. In this case, the total value of the inventory is 30.00 USD, which you calculate using this equation:

(1.5 × 5) + (2 × 5) + (2.5 × 5) = 30.00

Next, suppose that you sell another five items for 1.50 USD each. In this case, the total value of the inventory is 22.50 USD, which you calculate using this equation:

(2 × 5) + (2.5 × 5) = 22.50