Order Time and FIFO

Overview:

Inventory Value in Order Time is determined using the First In, First Out (FIFO) method with the exception of Items that are tracking Lot / Serial Numbers. First-in-first-out (FIFO):  Meaning your costs of sales in determined by cost of the items you purchased the earliest and inventory is comprised of cost of the items you purchased the latest.

This also applies to Production and Work Orders. When components are consumed each component will have a value based on the FIFO method. 


Example:

Company XYZ purchased 3000 widgets during the year and sold 1600, so it has 1400 widgets in stock at the end of the year. (There was no beginning inventory)

The following is a schedule of purchases it made:

Date

Qty

Cost per

Total cost

Jan 25, 2016

1,000

$1.00

$1,000

July 3, 2016

1,000

$1.25

$1,250

Nov 9, 2016

1,000

$1.10

$1,100

Total purchases = $3,350

The following is a schedule of sales of widgets:

Date

Qty

Price

Total Price

Feb 4, 2016

800

$2.00

$1,600

July 14, 2016

800

$1.80

$1,440

Total sales = $3,040





Under FIFO inventory would be valued at $1,600 (400 @ $1.25 + 1,000 @ $1.10). Cost of sales would be $1,750 ($0 + $3,350 - $1,600) and gross profit would be $1,290 ($3,040-$1,750)