subject: Investing Knowledge [print this page] There are a lot of ways to calculate inventory but the three that are often used are FIFO, LIFO, and Weighted Average. With first-in, first-out, (FIFO) the oldest order is gets its inventory deducted first. Conversely, the most recent purchases are assigned to units in ending inventory. Last-in, first-out, (LIFO) is just the reverse of FIFO; recent costs are assigned to goods sold while the oldest costs remain in inventory. The weighted-average method relies on average unit cost to calculate cost of units sold and ending inventory. Average cost is determined by dividing total cost of goods available by total units available for sale. These are ways that most companies keep track of their inventories and they will all give you different inventory totals.
Investing Knowledge
By: Kyle Donovan
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