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Explain FIFO Inventory Costing.

Explain FIFO Inventory Costing.

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Solution:

FIFO Inventory : First in first out method is used to calculate the cost of the goods sold. This is simple and easy method to adopt in costing method.

At every point of goods sold first purchase inventory is taken as first sold. Means oldest goods in stocks are sold first and new goods are sold in later.

This method is mostly used in the business where the chances of material become obsolescence. So in this case first purchased is sold first for avoid of any material obsolescence.

So in the closing stock always new goods are there and old stocks are removed on the basis of FIFO method.

FIFO method is allowed in GAAP and IFRS also.

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