LIFO Inventory Calculator
Calculate inventory value using LIFO method where newest inventory items are sold first
What is LIFO (Last-In, First-Out)?
Calculate inventory value using LIFO method where newest inventory items are sold first
Advantages of LIFO
Matches current costs with current revenue
Lower reported profits during inflation (tax benefit)
Reduces tax liability in rising cost environments
Better matching of expenses with revenues
When to Use LIFO
US-based businesses (not allowed under IFRS)
Rising cost environments for tax benefits
Industries with non-perishable goods
Tax optimization strategies
Manufacturing with bulk materials
Considerations for LIFO
Not allowed under IFRS (international standards)
Can understate ending inventory value
May not reflect actual physical flow
Complex inventory liquidation effects
LIFO Formula
Under LIFO, the cost of ending inventory is based on the oldest purchases, as newer inventory is assumed to be sold first.
LIFO Calculation Example
Scenario:
Using the same ABC Company example with rising costs:
Purchases:
| Date | Quantity | Unit Cost | Total Cost |
|---|---|---|---|
| Jan 5 | 100 | $10 | $1000 |
| Jan 15 | 200 | $12 | $2400 |
| Jan 25 | 150 | $14 | $2100 |
320 units sold during January
Calculation Steps:
Step 1: Total units available = 100 + 200 + 150 = 450 units
Step 2: Units remaining = 450 - 320 = 130 units
Step 3: Under LIFO, the 320 units sold come from newest inventory first:
- All 150 units from Jan 25 purchase (cost: $14 each)
- All 200 units from Jan 15 purchase (cost: $12 each)
- 70 units from Jan 5 purchase (cost: $10 each)
Step 4: Ending inventory consists of remaining 30 units from oldest purchase:
- 30 units × $10 = $300
Step 5: Cost of Goods Sold = (150 × $14) + (200 × $12) + (70 × $10) = $4,200
Final Results
Compare Inventory Valuation Methods
Understanding how LIFO compares to other methods can help you make informed decisions.
FIFO
First-In, First-Out
Top Advantages:
- Most common and widely accepted method
- Better for inflationary periods
- Higher reported profits during inflation
Best For:
- Perishable goods and products with expiration dates
- Inflationary business environments
LIFO
CurrentLast-In, First-Out
Top Advantages:
- Matches current costs with current revenue
- Lower reported profits during inflation (tax benefit)
- Reduces tax liability in rising cost environments
Best For:
- US-based businesses (not allowed under IFRS)
- Rising cost environments for tax benefits
Weighted Average
PremiumWeighted Average Cost Method
Top Advantages:
- Smooths out price fluctuations over time
- Simpler to calculate and understand
- Moderate profit reporting between FIFO and LIFO
Best For:
- Commodities and similar products
- When units are indistinguishable
Average Cost
PremiumAverage Cost Method
Top Advantages:
- Simple and straightforward calculation
- Eliminates price fluctuation effects
- Easy to understand and implement
Best For:
- Small businesses with simple inventory
- Limited transaction volume
Premium Calculator
LIFO requires a premium subscription:
- LIFO method
- All premium methods
- Advanced features
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