FAQs: FIFO Calculated Cost Method
The calculated cost method FIFO (First In, First Out) is one of the available calculated cost methods in Yellow Dog Inventory. It’s important to choose the best calculated cost method for your business to ensure accurate, consistent, and audit-compliant cost valuations of inventory.
Q: What client type is this cost method best suited for?
A: The FIFO method is best suited for F&B and Concessions clients. It is ideal for operations where tracking the specific cost of each unit sold is critical, such as in food preparation environments where ingredients are consumed in the order they are received.
Q: How is the calculated cost determined for this method?
A: FIFO walks back through the receipt history of an item, matching sales and deductions to the oldest available quantities first. The cost of an item sold is calculated based on the order in which inventory was received:
Each sale deducts from the oldest received cost first.
When on-hand of an inventory item reaches zero, the system resets the calculated cost.
Q: What are the strengths of this method?
A: Key strengths of the FIFO method include:
- For operations with perishable goods, FIFO aligns with natural stock flows — older items are typically used or sold before newer ones.
- It ensures that the cost of goods sold (COGS) is based on the earliest purchased items, which can help maintain consistent cost tracking over time.
Q: What are things to keep in mind if selecting this method?
A: When using FIFO it is important to keep in mind:
- While this is important for any calculated cost method, purchasing must be enter in a consistent and timely manner to ensure accurate costing.
- Not available as a global method (all stores) —only per store basis.
Q: Can you provide an example of how calculated cost is determined using FIFO?
A: The table below demonstrates an example of how the calculated cost is determined using FIFO.
A: The table below demonstrates an example of how the calculated cost is determined using FIFO.
Key takeaway: FIFO ensures the oldest costs are matched to sales first, leaving you with the most recent inventory values.
Related Article:
Feature Overview: Calculated Cost
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