FIFO Inventory Method: Follow Partial Cost Layers

Read the supplied chronology

Use one fictional item, unit pieces, with no returns, losses or additional costs. Apply FIFO after each issue in the order shown. Prices below are costs per piece, not customer selling prices.

Use part of the second layer for the first issue

The first issue takes all 8 opening pieces at 5, then 4 of the 10 pieces at 6. Its cost is (8 × 5) + (4 × 6) = 40 + 24 = 64. The remaining layer is 6 pieces at 6, cost 36.

Do not remove the entire 10-piece layer merely because the issue touched it. FIFO consumes quantities, not whole rows. After R-2 arrives, available layers are 6 at 6 followed by 6 at 7.

Carry the remainder into the second issue

I-2 takes 5 of the older remaining pieces at 6, assigning cost 30. It leaves 1 piece at 6 and all 6 pieces at 7. Ending inventory is therefore 7 pieces costing 6 + 42 = 48.

Check quantity and cost conservation

Quantity available is 8 + 10 + 6 = 24 pieces. Issues total 12 + 5 = 17, so 7 remain. Available cost is 40 + 60 + 42 = 142, and 64 + 30 + 48 = 142.

Both checks matter. A card could preserve total cost while assigning the wrong layers, or show the correct ending quantity with the wrong unit costs. Preserve the layer trail so another reader can inspect how each issue was valued.

Separate cost flow from warehouse movement

OpenStax explains FIFO as a cost-flow assumption. This calculation alone does not prove which physical pieces were picked. A physical rotation policy may use dates or condition for operational reasons; that is a separate observation.

For a self-check, change I-2 to 7 pieces. It consumes 6 at 6 and 1 at 7, costing 43, and leaves 5 at 7, costing 35. Do not apply the newest price to all 7 pieces or reuse the original 48 closing amount after changing the issue.