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stupid Q but can't understand fifo and lifo

  • 06-01-2016 9:37pm
    #1
    celligraphy
    Registered Users, Registered Users 2 Posts: 492 ✭✭


    Hi guys currently can't get my head around the fifo and lifo methods , I'm stuck on lets say company make a following sales and purchases

    1 January purchases 4000 units @ $10,000
    31 Jan purchases 1000 units @ $2,000
    15 Feb sales 3,000 units @ $13,000
    28 Feb purchase 1500 units @ $3,750
    14 March sales 500 units @ $1200

    I'm great until I get to Feb and can't understand how to get the price per unit on fifo method


Comments

  • #2
    volono
    Registered Users, Registered Users 2 Posts: 217 ✭✭volono


    Hi o.p. its a way of working out inventory you also have the avco method. Therefore
    Jan. 4000 at 10000 = 40,000,000 + 1000 at 2000 = 2,000,000 = 42,000,000
    FEB u sell 3000 units (doesn't matter if you sell them for a million each that's part of sales this is for valuing inventory) so with fifo our first purchase was 4000 units. we have now sold 3000 units so value of inventory we have left is 1000 units at 10,000 = 10,000,000 and the other purchase we made in jan. of 1000 at 2000 = 2,000,000 so our closing inventory for feb.15 is 12,000,000
    we make another purchase on feb28 1500 at 3750 = 562500 this is added to our feb15 total
    our next sale is 500 units on march 14. Now we still have a thousand units of our very first purchase so our closing inventory at the end of march will be :
    500 units at 10,000 = 5,000,000
    1000 units at 2000 = 2,000,000
    1500 units at 3750 = 5,625,000
    REMEMBER fifo lifo avco are all just purely ways of estimating price of closing inventory for a given period. the cost is the cost
    hope this gives some sort of help gl


  • #3
    Bobby1984
    Registered Users, Registered Users 2 Posts: 269 ✭✭Bobby1984


    When you say 1 January purchases 4000 units @ $10,000, is this 10,000 per unit or was the total value of the purchases 10,000?

    FIFO Method
    is as per Volcano post so at the end of March you will have the following in stock:
    500 units @ 10,000
    1000 units @ 2000
    1500 units @ 3750

    LIFO Method
    You are selling the last stock received first so for the sale in Feb you are selling all the 1000 units @ 2000 bought on 31 Jan and 2000 of the units bought on 1 Jan.
    When it comes to the sale of 500 units in March, you are selling the last units received so this 500 units will be taken from the 1,500 units @ 3,750 which were bought on 28 Feb.

    Hope this helps.

    PS LIFO is not an allowable method of valuation under IAS2 ;)


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