FIFO (first in, first out)
Quick answer
FIFO (first in, first out) is the rule by which the first goods received are the first to leave stock, both at shipping and in the cost of goods sold.
Key takeaways
- FEFO: the lot with the nearest expiry goes first, not the oldest received
- Weighted average cost: one average cost for all stock, recalculated at each receipt
- LIFO: last in, first out, rarely used physically and not permitted by IFRS for valuation
What FIFO is
FIFO (first in, first out) has two uses: as a physical warehouse rule (the earliest received lot ships first) and as an inventory valuation method (cost of goods sold is taken from the oldest receipts). The two need not coincide, but in practice they are often linked.
How cost is calculated with FIFO
Cost of goods sold is taken from the oldest lots, in order, until the quantity sold is covered. Closing stock value = remaining quantity × the costs of the most recent lots. Example: 100 units at 10, then 100 units at 12; 150 are sold. Cost sold = 100 × 10 + 50 × 12 = 1,600; remaining stock 50 × 12 = 600.
FIFO compared with other rules
- FEFO: the lot with the nearest expiry goes first, not the oldest received
- Weighted average cost: one average cost for all stock, recalculated at each receipt
- LIFO: last in, first out, rarely used physically and not permitted by IFRS for valuation
Common mistakes
1. FIFO in the system, another order in the warehouse. If the picker takes whatever is at hand, the cost in the system no longer matches the physical goods.
2. FIFO for products with expiry. A newer lot can expire before an older one; FEFO applies there.
3. Prices without lot history. Without the cost of each receipt, FIFO cannot be calculated correctly.
How it shows up in an operations platform
CRMconnect's stock management module keeps available, reserved and in-transit stock per item and warehouse, with movements updated in real time. The valuation method for accounting is chosen in the company's ERP, with which CRMconnect synchronises.
Real-world example
A warehouse received 200 units last month at 10 and 200 units this month at 11. For an order of 250 units, FIFO ships and values the 200 old units first, then 50 of the new ones: cost sold 200 × 10 + 50 × 11 = 2,550.
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Frequently asked
What does FIFO mean?+
FIFO means first in, first out: the goods received first are the first shipped or the first used in the cost of goods sold.
What is the difference between FIFO and FEFO?+
FIFO follows the receipt date, FEFO the expiry date. For food and perishable products FEFO protects against losses better, because a newer lot can expire first.
How does FIFO affect profit when prices rise?+
When costs rise, FIFO uses the older, lower costs first, so cost of goods sold is lower and reported profit higher than with weighted average cost.
When is FIFO used and when weighted average cost?+
The method is chosen according to the company's accounting policies and applicable rules. FIFO suits lots with different costs whose traceability is kept; average cost simplifies records.
Where CRMconnect fits
Where CRMconnect helps
Stock across all locations is visible in real time, and replenishment alerts appear when it drops below the set threshold.
Related terms
FEFO (First Expired, First Out)
The rule of shipping the batch with the nearest expiry date first, essential for perishable products.
LogisticsInventory valuation methods (FIFO, LIFO, WAC)
Accounting rules to determine the cost of goods leaving stock: first-in-first-out, last-in-first-out, or weighted average cost.
LogisticsInventory turnover
How many times stock is fully sold and replenished in a period - a measure of capital efficiency.
LogisticsDead stock
Goods unsold for a long period that lock capital and space, with little prospect of selling at normal price.