FIFO (First in first out) is a method of stock management.
The FIFO method is a method of stock management which consists of removing the oldest products from your stock before the newest ones. Companies that sell perishable products often use this type of method.
In addition to being able to sell all your products before the expiry date, the FIFO method allows you to reduce your storage costs. The longer a product is kept in stock, the more money it will cost you over time.
What are the advantages of the FIFO method?
- This method is authorised by the tax authorities, unlike the LIFO method.
- It allows for product obsolescence and wear and tear.
- It also takes into account current market prices.
What are the disadvantages of the FIFO method?
- The FIFO method does not take into account changes in market prices over time.
- In case of inflation, it overestimates the gross margin when selling assets.
- Good traceability of batches is needed to know the prices so that they can be managed differently.