How does FIFO affect taxes in a rising-price environment?

FIFO produces lower COGS and higher taxable income when prices rise, resulting in higher current-period tax liability compared to LIFO.

Is FIFO allowed under IFRS?

Yes. IFRS prohibits LIFO but permits FIFO and weighted average cost. FIFO is the most commonly used inventory method globally.

When is FIFO most appropriate?

FIFO is appropriate for perishable goods or products with expiry dates where older inventory genuinely is (or should be) sold first, making the cost flow assumption match physical reality.

FIFO Inventory Cost Calculator

Calculate cost of goods sold (COGS) and ending inventory value using the First-In, First-Out (FIFO) inventory costing method.

By AbraCalc Editorial Team · Reviewed by AbraCalc Methodology Review · Last reviewed: 2026-06-25

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How to use this tool

Enter batch 1 — units purchased, batch 1 — cost per unit, batch 2 — units purchased, batch 2 — cost per unit and units sold in the fields above.
Results update instantly as you type — or click Calculate.
Read your cogs (fifo) and the full breakdown beneath it.

⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.

Formula

FIFO COGS: sell oldest units first at their original cost.

If units sold ≤ Batch 1 units: COGS = Units Sold × Batch 1 Cost

If units sold > Batch 1 units: COGS = (Batch 1 Units × Batch 1 Cost) + (Remaining Sold × Batch 2 Cost)

Ending Inventory Value = Total Inventory Value − COGS

How it works

Under FIFO (First-In, First-Out), the earliest purchased inventory is assumed to be the first sold. This means COGS reflects older, typically lower costs during inflationary periods, resulting in higher reported gross profit and ending inventory values closer to current market prices. FIFO is permitted under both US GAAP and IFRS.

Worked example

120 Units Sold from Two Batches

Batch 1: 100 units @ $10 each = $1,000; Batch 2: 50 units @ $12 each = $600; total = $1,600.
Under FIFO, sell all 100 units from Batch 1 first: 100 × $10 = $1,000.
Remaining 20 units sold from Batch 2: 20 × $12 = $240.
COGS = $1,000 + $240 = $1,240.
Ending inventory = 30 units (from Batch 2) × $12 = $360.

FIFO COGS = $1,240; ending inventory = $360 (30 units).

Common mistakes to avoid

Assuming FIFO always produces lower COGS than LIFO — FIFO produces lower COGS (and higher profit) only when prices are rising; in a deflationary environment the relationship reverses.
Failing to exhaust earlier batches before applying costs from later batches — under FIFO, all units from Batch 1 must be sold before Batch 2 costs are used, regardless of which physical units were actually shipped.
Confusing ending inventory value with COGS under FIFO: ending inventory reflects the most recent (higher) costs in an inflationary environment, not the oldest costs.

Key terms

What is FIFO?: First-In, First-Out assumes the oldest inventory costs are matched to sales first, leaving the most recent purchase costs in ending inventory.
How does FIFO differ from LIFO?: LIFO (Last-In, First-Out) uses the newest costs for COGS; during inflation, LIFO produces higher COGS and lower taxable income. LIFO is not permitted under IFRS.
When is FIFO advantageous?: FIFO shows higher net income in rising-price environments since older, cheaper inventory hits COGS; it also reflects a more current balance-sheet inventory value.
Does FIFO match physical flow?: Not necessarily — it is an accounting assumption about cost flow, not necessarily how goods physically move, though it often aligns with perishable or date-sensitive goods.

Frequently asked questions

How does FIFO affect taxes in a rising-price environment?: FIFO produces lower COGS and higher taxable income when prices rise, resulting in higher current-period tax liability compared to LIFO.
Is FIFO allowed under IFRS?: Yes. IFRS prohibits LIFO but permits FIFO and weighted average cost. FIFO is the most commonly used inventory method globally.
When is FIFO most appropriate?: FIFO is appropriate for perishable goods or products with expiry dates where older inventory genuinely is (or should be) sold first, making the cost flow assumption match physical reality.