FIFO (First-In-First-Out) - Courses for Crammers

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First-In-First-Out (FIFO) means that you’ll associate the cost of goods sold to the first, or oldest, units in the inventory.

Scenario: Your lemonade stand made the following inventory purchases during March 2022.

Date	Transaction	Units	Cost	Total Cost
Dec 1	Beginning inventory	10	$10	$100
Dec 5	Purchase	5	$8	$40
Dec 10	Purchase	15	$6	$90
Dec 18	Purchase	20	$5	$70
			Total	$300

Over the course of December, your lemonade stand sold 30 units for $20 each. Your lemonade stand uses FIFO. Solve for Cost of Goods Sold.

Units Sold = 30 units

Date	Transaction	Units	Cost	Total Cost
Dec 1	Beginning inventory	10	$10	$100
Dec 5	Purchase	5	$8	$40
Dec 10	Purchase	15	$6	$90
Dec 18	Purchase	20	$5	$70
			Total	$300

COGS = (10 units x $10)...

We still have 30 units - 10 units = 20 units to assign a cost to.

Date	Transaction	Units	Cost	Total Cost
Dec 1	Beginning inventory	10	$10	$100
Dec 5	Purchase	5	$8	$40
Dec 10	Purchase	15	$6	$90
Dec 18	Purchase	20	$5	$70
			Total	$300

COGS = (10 units x $10) + (5 units x $8)...

We still have 30 units - 10 units - 5 units = 15 units to assign a cost to.

Date	Transaction	Units	Cost	Total Cost
Dec 1	Beginning inventory	10	$10	$100
Dec 5	Purchase	5	$8	$40
Dec 10	Purchase	15	$6	$90
Dec 18	Purchase	20	$5	$70
			Total	$300

COGS = (10 units x $10) + (5 units x $8) + (15 units x $6)

We still have 30 units - 10 units - 5 units - 15 units = 0 units to assign a cost to... so we're done!

COGS = (10 units x $10) + (5 units x $8) + (15 units x $6)
COGS = ($100) + ($40) + ($90)
COGS = $230

When we utilize FIFO to cost the units sold in the example above, we get a Cost of Goods Sold value of $230!

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