FIFO (First-In, First-Out) Method
With the first in, first out method, the cost of goods purchased first (first-in) is the cost of goods sold first
The value of the cost of goods sold is determined by the amount of the products that were
purchased first as they are assumed to be used or sold first. The ending inventory is based on the most
recent purchases (Miller-Nobles, Mattison, & Matsumura, 2018).
: Grocery stores typically use the FIFO method especially for perishable products, such fresh
meats, fruits, and vegetables. The products that were purchased first can spoil sooner. Therefore,
grocery stores tend to discount these items when they get close to the expiration date in order to avoid
throwing out products and losing money.
LIFO (Last-In, First-Out) Method
The last-in, first-out method is the exact opposite of FIFO.
In this method, the ending inventory comes
from the oldest costs (beginning inventory and earliest purchases) of the period and the cost of goods
sold is determined by the most recent purchases.
It is assumed that last units in are the first to be sold
(Miller-Nobles, Mattison, Matsumura, 2018).