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FIFO vs. LIFO: How to Pick an Inventory Valuation Method

If you are wondering about FIFO vs LIFO then, you came to the right place. Here, you can learn two inventory valuation methods, and also you can learn which one is the best for you. This is more to inventory valuation as compared to simply entering the amount that you pay for the inventory into your accounting program. It is very important to figure out the financial status of a company that manufactures goods. It is crucial as excess or shortage of the inventory, which affects the production as well as the profitability of a business. Make use of an online FIFO & LIFO calculator that determines the remaining value of inventory & cost of products sold.

Inventory Valuation Methods:

There are different methods through which you can calculate the cost of the value of inventory. Here, we are going to mention a few methods of calculation so, have a look at the types of valuation methods. Instead of using these methods, you can also use the FIFO LIFO method calculator for the inventory calculations.

Specific Identification:

In this calculation method, the specific identification valuation attaches the cost to particular terms in inventory. This is done by using the serial numbers or by using another unique identifier. It seems to be a little bit complicated but you don’t have to worry about the calculation. You can simply use the online LiFo FiFo calculator that allows you to perform the ending inventory calculations by using LIFO & FIFO methods of inventory valuations.

Weighted Average:

The weighted average method for inventory valuation is usually used when the inventory is not perishable but the stocks can be rotated or intermingled easily. To find the weighted average cost you need to divide the total cost of products purchased by the total number of units available for sale. To determine the cost of goods for sale, you are required the total amount of beginning inventory & recent purchases. To make the calculation easier, you can try the inventory calculator by calculator-online.net that helps to calculate the ending inventory value, cost of products purchased, and cost of product sold.

Retail Method:

The retail inventory method is known as an accounting method, which is used to estimate the value of the company’s product. The retail method gives the ending inventory balance for the store by calculating the cost of inventory relative to the price of the product. Along with the sales & inventory for the period, the inventory method is considered the cost to retail ratio. Instead of using this complicated procedure, make use of LIFO and FiFo calculator that calculate the ending inventory management calculations depending on the FiFi formula.

Which Inventory Valuation Method Is Best:

Selecting the appropriate valuation method is important because it has a direct impact on the profit margin of the business. It can also be the reason for a drastic difference in the cost of goods sold, net income, & ending inventory. For the inventory valuation you can use the above-mentioned method but if you don’t want to use them then, you can consider the FIFO & LIFO calculator that uses the FIFO and LIFO valuations to provide the FIFO LIFO inventory table. 

  • If the inventory expenses are escalating or likely to increase, then LIDF costing is the better option. When the higher-cost products are considered to be sold, then it will result in higher costs and lower profits. 
  • If the inventory expenses are decreasing, FIFO might be a good option for the inventory valuation.
  • For the accurate cost, you can use the FIFO method of inventory valuation that assumes the older items are less costly to be sold first.

There is no doubt that there are some advantages and disadvantages of using these methods but you can get rid of the complications of the inventory methods. All you can do to eliminate the complexities of calculations is to use the last in first out calculator that uses the basic inventory formula for the inventory calculations.

Conclusion:

In this guidepost, we have shown you the different methods that you can consider for the inventory valuation.  We have also mentioned which one is the best that lets you know how to pick an inventory valuation method. Instead of using the listed methods, an online FIFO & LIFO Calculator is a good option to consider for the inventory calculations.

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