LIFO Inventory Calculator

Understanding the Last-In, First-Out (LIFO) Method

The Last-In, First-Out (LIFO) method is an inventory accounting assumption where the items most recently acquired or produced are assumed to be sold first. Consequently, Cost of Goods Sold (COGS) is reported using recent market prices, while ending inventory remains valued at older historical acquisition costs.

LIFO vs FIFO Comparison

In periods of inflation (rising prices):

• LIFO: Results in higher COGS, lower net taxable income, and lower ending inventory valuation.
• FIFO: Results in lower COGS, higher net taxable income, and higher ending inventory valuation.

LIFO Calculations Formula

To compute Cost of Goods Sold under LIFO:

$$\text{COGS} = \sum (\text{Units Sold from Layer } k \times \text{Unit Cost of Layer } k)$$

Where layer $k$ represents inventory layers ordered from newest to oldest.