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Can someone help me with the difference between LIFO and FIFO?


10/1 Beginning Inventory 60units @ $25
10/9 Purchase 120 units @ $26
10/11 Sale 100 units @ $ 35
10/17 Purchase 70 units @ $27
10/22 Sale 60 units @ $40

I must now,
1. Caculate the ending inventory, cost of goods sold, gross profit and gross profit rate for
LIFO
FIFO
Average cost.
2. Compare results for the three cost flow assumptions.

I do not understand the difference in putting the information in the spreadsheet for LIFO and FIFO. Anyhelp would be greatly appreciated.
10/25 Purchase 80 units @ $28
10/29 Sale 110 units @ $40

538 day(s) ago

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Answers (4)

brucechangcpa 		last in first out means you sell the last inventory items.

you sold 100 units at 35 (3500) and 60 at 40 (2400).
the net sales is going to be 160 units @$5900 no matter what you do. You sold 160 units. so with last out you start with last out. 70 @ 27, and then 90@26.

the ending inventory is going to be the remaining 30 of the $26, and the starting 60@$25.

Fifo means you sell the 60 beginning units and then a 100@$26.

Separate the sales, which doesnt change, and it should be simpler.

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SteinS 		LIFO stands for Last In First Out
FIFO stand for First In First Out.

Based on your values for inventory here is how to cost out Cost of Goods sold for FIFO.
for the 10/11 sale the COGS is (60*$25)+(40*$26)
for the 10/22 sale the COGS is (60*$26)

For LIFO, the sale on 10/11 would be costed out as follows
100*$26.
The sale on 10/22 would be costed out as follows
(60*$27)

Hope this helps.

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kimkimcpa 		LIFO = Last in, First out (last items purchased are the first items sold)
FIFO = First in, First out (first items purchased are first items sold)

I don't know that I can help you with the equations, but for the LIFO calcualtions, you'd start "backwards" by selling the items that were purchased last and moving backwards to sell items purchased on earlier dates as needed. For FIFO calculations, you'd do the opposite, i.e., sell the items in order of purchase date.

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noamnoam 		One way to think about LIFO and FIFO is to picture in your mind a big jar of M&M's that has a dispenser at the bottom. After the jar is filled and you take some out to eat, if you use the dispenser at the bottom, it's FIFO. If you take the top off and grab some, it's LIFO. Given your data, the cost of the first 100 units sold is this:

LIFO: $2600 (all 100 units come from the 10/9 purchase)

FIFO: 60 units @ $25.....$1500
+40 units @ $26.....$1040
COGS.....................$2540

Hope that helps

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