Examples of FIFO Inventory Method
FIFO is a method of inventory valuation that assumes that inventory purchased at the earliest will be sold/consumed/used first in preference to stock purchased later. This method normally assumes that the oldest stock is withdrawn at the earliest and holds importance because closing stock directly affects the amount of profit earned during a period. Let’s understand the FIFO concept with the help of examples.
Top 4 Examples of FIFO Inventory Method
Let us understand the concept of the FIFO inventory method with the help of detailed examples.
Calculate the value of the closing stock of Orange Inc. as on 31.12.2019 with the help of the following information: –
Calculate the value of the closing stock as on 31.01.2019.
Since FIFO assumes goods purchased earlier will be sold earlier, the closing stock will be valued at the price of goods procured at the last. Therefore, the closing stock will be valued as follows:
Closing Stock = Purchases – issue = 26 – 19 = 7
Valued as follows = 4 * 12500 = 3 * 12000 = $86000
Marc Bike LTD a dealer of Bikes given the following data. Calculate the cost of inventory with the help of given information:
Identify the value of the closing stock as on 31.01.2019 using the appropriate valuation method.
Inventory will be valued as per the FIFO method since this is the case of goods that are sold in a pattern where goods purchased first will be sold earlier.
The value of 5 bikes held as inventory at the end of January will be as follows:
According to the FIFO method, the bike sold on 04th and 15th January will be out of stock purchased on 01st January. Therefore, out of 01st January purchases stock will 4 bikes as of 15th January. Again, on 25th January, sales will be first out of 4 bikes purchased on 01st January and thereafter 4 from bikes purchased on 20th January. Accordingly, the closing stock will be of a bike purchased on 20th January i.e. $80,000.
With the help of following given information, calculate the value of inventories as on 31/03/2019using FIFIO method: –
Value of closing stock as per FIFO will be calculated as follows:
Since there are multiple purchases and sales in this example, inventory value keeps on changing at each transaction. Value of closing stock as per FIFO as on 31.03.2019 will be $ 21,000 since last purchases were 200 quantity purchased @ 210/ unit i.e. $21,000.
Henry Inc. a chain retailer is engaged in the business of selling the single product – X Electric Induction. His company made the following purchases and sales. Also, incurred some abnormal transactions stated as below:
Calculate the value of closing stock and abnormal loss due to theft as per FIFO.
Value of abnormal theft loss will be as follows: Quantity x Rate = 20 x 100 = $2000
Value of Closing stock loss will be as follows:Quantity x Rate = 5 x 210 + 10 x 205 +10 x 100 = $4100
The closing stock holds an important position in any business since it directly affects figures for profits earned during a period. There are various methods of techniques for inventory valuation. Depending on the business model, every organization has to choose and follow consistently method of inventory valuation. The most common methods in use are FIFO, LIFO and weighted average. Normally, in any business FIFO inventory method may be applied where the movement of stock is fixed in the pattern where goods purchased earlier will be sold/consumed first.
This has been a guide to FIFO examples. We discuss the top 4 practical examples of first in first out (FIFO) inventory method with a detail explanation. You may also have a look at these articles below to learn more on accounting –