Scaffolded practice assigning costs to sales using FIFO and LIFO with validation
Calculating FIFO and LIFO by Hand
Now you'll work through a complete FIFO and LIFO calculation step by step. You'll fill in tables showing exactly which costs go to COGS and which stay in Ending Inventory.
FIFO (First-In, First-Out)
- •Oldest costs go to COGS first
- •In rising costs: lower COGS, higher profit
- •Think: "bottom of the stack"
LIFO (Last-In, First-Out)
- • Newest costs go to COGS first
- • In rising costs: higher COGS, lower profit
- • Think: "top of the stack"
Sarah's Office Supply Kits
Sarah purchased office supply kits over three months as costs increased. She sold 28 units this quarter at $60 each. Your task: calculate Cost of Goods Sold and Ending Inventory under both FIFO and LIFO.
Inventory Layers (Purchases)
| Layer | Units | Cost/Unit | Total Cost |
|---|---|---|---|
| Purchase 1 (Oldest) | 15 | $30 | $450 |
| Purchase 2 | 20 | $35 | $700 |
| Purchase 3 (Newest) | 10 | $40 | $400 |
| Total Available | 45 | — | $1550 |
Key Numbers to Remember
28
Units Sold
17
Units Remaining
$1680
Revenue
By completing this guided practice, you've seen how the same inventory produces different financial results under FIFO versus LIFO.
The Process You Followed
- Identified all inventory layers with their costs
- Assigned costs to COGS following FIFO (oldest first) or LIFO (newest first)
- Calculated the remaining units for Ending Inventory
- Verified that COGS + Ending Inventory = Goods Available for Sale
- Compared gross profit under each method
Coming up in Independent Practice: You'll solve a new scenario on your own and make a recommendation about which method a business should use.