Hello there, fellow number-cruncher! Ever thought of accounting as a culinary adventure? No? Well, let’s cook up some excitement as we dive into FIFO (First-In-First-Out) Costing, a quintessential recipe in the accounting kitchen. Grab your spatula and pagination, we’re about to make some cheddar (pun intended)! 🧀
The Bun 🍞: What is FIFO Cost?
FIFO stands for First-In-First-Out. Imagine a stack of burgers at a fast-food joint. The first burger that goes in the stack is the first burger to be served. FIFO costing is exactly like this burger mechanism. It assumes that the oldest inventory items are sold first.
Lettuce 🍃: The Wholesome Advantage
- Simplicity: Just like stacking burgers, it’s easy to understand!
- Accuracy: Matches actual flow of goods in many scenarios.
- Predictability: Costs align with the consistent movement of materials.
Patty 🥩: Crunching Numbers with FIFO
Let’s stack up an example. Assume you’re running a lemonade stand recently expanded to burgers (sassy ambition! Right?). Here’s your inventory movement:
| Date | Inventory Purchased | Quantity | Cost per Unit |
|---|---|---|---|
| Jan 1, 2023 | Original Lemonade Stock | 100 | $0.50 |
| Jan 10, 2023 | First Batch of Burgers | 50 | $2.00 |
| Jan 20, 2023 | Second Batch of Burgers | 50 | $2.50 |
Now, you sold 30 burgers on February 1, 2023. Under FIFO, it works like this:
- 30 burgers are sold from the first batch.
- Hence, the cost of goods sold (COGS) is 30 x $2.00 = $60.
- The remaining inventory is 20 burgers from the first batch (at $2.00 each) and 50 from the second batch (at $2.50 each).
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title FIFO Example
