Chapter 2 – Understand the Costing Method

Chapter 2.2 – FIFO Costing Method

first in, first out (FIFO) 
– first goods purchased are also the first goods sold.

Most companies use the FIFO method to value their inventory:

a. Closely matches the actual flow of goods

b. Considered the most theoretically correct inventory valuation method

c. Reduces the risk of obsolescence

d. Inventory is valued close to current replacement cost.

e. During periods of inflation, the use of FIFO will result in the lowest estimate of cost of goods sold compared to the other two approaches, as well as the              highest net income.

Example of the First-in, First-out (FIFO) Method:

Example of the First-in, First-out Method in the AutoCount stock card: