FIFO & LIFO Calculator

The lifo fifo calculator estimates the remaining value of inventory and cost of goods sold(COGS) by using the FIFO and LIFO method.  The product inventory management becomes easy with the assistance of this calculator for first-in-first-out and last-in-last-out.

What Is An Inventory?

It is referred to as a company’s goods in three stages of production including:

1. The items that are raw materials
2. The items that are in production
3. The items that are finished and ready for sale

In other terms, you just get the goods that the company has in the starting, very next, add the material that is purchased to generate more goods, then, subtract the goods that the company sold, the COGS is an acronym for the cost of goods sold, and the result is what remains – are said to be as an inventory.   

The given formula helps in inventory calculation:

BI+ Net Purchases −COGS=EI

Where:

• BI is the Beginning inventory
• EI is the Ending Inventory

What Is FIFO – First In First Out Method?

FIFO stands for first in first out! It is an inventory management term that means the items that were added first to the stock will be removed from stock first.  During the period of inflation, FIFO will outcome in the lowest estimate of cost of goods sold among the three approaches and even the highest net income.

What Is LIFO – Last In First Out Method?

LIFO or Last in first out is an efficient technique that is used in the valuation of the inventory value, the goods that were added at the last to the stock will be removed from the stock first.  In simple words, the inventory by LIFO assumes the most recent items added to the inventory are sold first.  When it comes to periods of inflation, the use of last-in-first-out will outcome in the highest estimate of the COGS among the three approaches and the lowest net income.

How To Calculate FIFO And LIFO?

FIFO:

If you want to calculate the cost of goods sold(COGS) concerning the FIFO method, follow the below-mentioned steps:

• Figure out the price of the inventory
• Multiply the cost by the total units sold

LIFO:

If you want to calculate the Cost of Goods Sold (COGS) by suing the LIFO method, then go through the following steps:

• Find out the number of units purchased
• Now, multiply it by the units purchased price to calculate COGS

Example:

Let’s suppose that there is a Mike’s Television Company that has been in operation now for a year; this is what his inventory costs look like:

This means the total units that are acquired are 1450

Units = Televisions Now calculate cost of goods sold(COGS)

Solution:

The FIFO Method:

When it comes to the FIFO, Mike needs to utilize the older selling price of acquiring his inventory and work ahead from there.

So, the COGS calculation is as follows:

• 200 units x $800 = $160,000
• 300 units x $825 = $247,500
• 200 units x $850 = $170,000
• 300 units x $875 = $262,500
• 100 units x $900 = $90,000

Mike’s COGS is $930,000.

The LIFO Method:

Calculate COGS as below: 

• 450 units x 900 = $405,000
• 300 units x 875 = $262,500
• 200 units x 850 = $170,000
• 150 units x $825 = $125,750

COGS is $961,250.

FIFO Vs. LIFO:

• If the ending inventory prices are going up, or are likely to increase, the LIFO method  may be better as the higher-cost units are accounted to be sold
• If the opposite is true, and the ending prices are going down, then calculate ending inventory by FIFO approach might be better. Since the selling prices usually increase, it  helps to determine the profit margin

\(\ Profit\ margin\ Formula =\dfrac{Revenue}{Profits}⋅100 \ percent \)

• To evaluate more accurately, use the FIFO ending inventory approach, as this valuation assumes that older less-costly units sold on the priority

What Are The Advantages And Disadvantages of LIFO Method?

Advantages:

• Helps to Improve your business cash flow by reducing the income tax costs
• It integrates precisely with your inventory flow and allows you to keep things align

Disadvantages:

• LIFO ending inventory approach is more difficult to maintain than the FIFO as it can result in older inventory that is never being shipped or sold
• LIFO results in more complex records and even accounting practices because the unsold remaining inventory prices do not leave the accounting system