The exact same physical inventory movement can produce three different reported cost-of-goods-sold figures — purely from which costing method a business chooses.
How it works
FIFO costs units sold from the oldest purchase layer first; LIFO costs from the newest layer first; weighted average blends all available units into one per-unit cost before applying it to units sold.
What this does not include
This does not include more than two purchase layers — a real inventory ledger typically has many purchase batches at different prices, though the same FIFO/LIFO/weighted-average logic extends naturally to as many layers as needed.
How to use this calculator
- Enter two purchase layers (quantity and cost per unit each) and units sold.
Frequently asked questions
Why does the choice of method matter for taxes?
In a period of rising prices, LIFO produces a higher COGS (and thus lower reported taxable income) than FIFO, which is why some U.S. businesses have historically preferred LIFO for tax purposes.
Is LIFO allowed everywhere?
No — LIFO is permitted under U.S. GAAP but prohibited under IFRS, which most countries outside the U.S. use, making it a significant difference between the two accounting frameworks.
Does the costing method affect the actual physical flow of goods?
No — FIFO, LIFO, and weighted average are all accounting assumptions about cost flow; a business can use LIFO for accounting purposes while physically shipping its oldest inventory first (or vice versa).
