"FIFO" stands for first-in, first-out, meaning that the oldest inventory items are recorded as sold first but it does not necessarily mean that the exact oldest physical object has been tracked and sold.
In other words, the cost associated with the inventory that was purchased first is the cost expenses first.
With FIFO, the cost of inventory reported on the balance sheet represents the cost of the inventory most recently purchased.
Consider this example: Foo Co. had the following inventory at hand, in order of acquisition in November:
Number of units
If Example Co. sells 210 units during November, the company would expense the cost associated with the first 100 units at $50 and the remaining 110 units at $55. Under FIFO, the total cost of sales for November would be $11,050.
The ending inventory would be calculated in the following way:
Number of units
Price per unit
Remaining 15 units
$825 ($55 x 15 units)
$4425 ($59 x 75 units)
Thus, the balance sheet would now show the inventory valued at $5250.
IvA and TvA both use the same calculation for actual usage quantities (BI +Pur-EI=Usage).
The actual dollars portion of TvA can appear skewed due to changes in ingredient pricing from week to week when compared to theoretical usage dollars, which are priced at a single value.
Market Value / NON- FIFO
TvA says that I used $400 in product X and IvA says I used $200 in product X, why is there such a large variance?
A. TvA is better served as an accounting analysis tool and to identify potential items to add to IvA reporting.
B. For example, if you inventory a $50 case of tomatoes this week, and a $40 case of tomatoes next week, and have zero waste the price change results in $10 additional dollars of actual usage.
It is Decision Logic’s recommendation that TvA not be used as an inventory variance investigation tool.
IvA is our recommended tool for Inventory Variance investigation because IvA focuses on product waste, not pricing, which is something that managers cannot impact nor control.
Managers CAN impact and manage product usage.
FIFO Steps for Validation
Decision Logic has a FIFO method which allows for the application of depleting the inventory at the correct inventory value and not changing the value of inventories based on the current, or “market” value.
To show the validation of FIFO for cases of discrepancies, see below::
First, go to COGS Reports > COGS > Select Store > Select Start and End Period/Week
Choose “Category” i.e. Ribs Chicken > Chic and Rib - Chicken (split whole) raw