First-in, first-out method
it is the inventory valuation method that identifies the invoice cost of each item in ending inventory to determine the cost assigned to that inventory
What is First in first out method ?
The first in, first out (FIFO) method of inventory valuation is a cost flow assumption that the first goods purchased are also the first goods sold.
- In most companies, this assumption closely matches the actual flow of goods, and so is considered the most theoretically correct inventory valuation method.
- Imagine if a company purchased 100 items for $10 each, then later purchased 100 more items for $15 each. Then, the company sold 60 items. Under the FIFO method, the cost of goods sold for each of the 60 items is $10/unit because the first goods purchased are the first goods sold.
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