What is FIFO principle? Advantages and disadvantages in import and export like?

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X You do not understand what the difference between FIFO and LIFO is? Which warehouse management method should be optimal in logistics and import -export activities?

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What is FIFO, abbreviated for words? Example of FIFO?

The following content will help your business understand what the FIFO principle is:

What is FIFO?

The principle of FIFO or First in First Out, is the principle of importing and exporting goods in accordance with the principle of the first imported shipment will be exported first. This is considered a method to manage the goods with the method of which goods imported to the warehouse first will prioritize the warehouse first.

The goal of this management method is to achieve the best goods rotation in the warehouse. Thus, minimize the damage or expiry date of the products in the warehouse.

Examples of FIFO

Examples of how FIFO principle is applied to calculate inventory prices:

Suppose a new product model is about to be launched and the X clothing store has imported 100 T -shirts with the price of 50,000 VND/unit in February 2023. Therefore, the total cost of inventory initially inventory is VND 5,000,000.

After that, the store owner imported 60 units respectively with the price of 55,000 VND/unit and 65 shirts with the price of 60,000 VND/unit in the next 2 months. Then the total inventory is presented in detail in the following table:

In May, the store sold a total of 80 shirts. According to the FIFO principle, the cost of goods sold is calculated as follows: 50 x 50,000 + 30 x 55,000 = 4,150,000 VND. The remaining 85 unused shirts are included in inventory.

The store may rely on the cost of goods sold to calculate the store's profits in that month by taking the sales deducted from the cost of the goods sold.

Advantages of FIFO first, export first

What is the advantage of the FIFO principle? Among the small businesses, even some larger retailers, FIFO is the most widely used inventory accounting method because it brings some practical benefits such as:

FIFO provides clearly inventory costs

The FIFO method provides businesses with the most obvious picture of the actual inventory cost. When you sell the oldest inventory first, the expected cost line and the actual line of goods will give you the most accurate picture of the cost and profit of the business.

FIFO has high accuracy

If you are trying to compare the management of inventory of your business with other businesses, the use of FIFO method will provide you with the best picture of your inventory system. This is because this method is most widely used in many types of business.

FIFO reduces obsolete

Businesses selling their inventory by FIFO method will be able to delete old inventories before it becomes outdated. After finishing, they can sell their newer advertising space. This also allows them to reduce the load of any damaged goods without causing them to be damaged.

FIFO reduces the effects of inflation

One of the biggest advantages of using the pre -export method is to reduce the impact of inflation on your inventory costs. Sales of older inventories are produced when inflation and lower costs will maximize profits obtained from inventories.

Disadvantages of FIFO imported first, export first

So, in addition to the advantages, what is the disadvantage of the FIFO principle? That is:

FIFO is complicated when managing long -term goods

For businesses with non -shelfed goods, FIFO can easily lead to older products not sold, making it long -term inventory and difficulty in management.

FIFO is not optimal in the price increasing environment

When raw materials or products increase, FIFO can lead to lower cost recognition than the current market price. This may increase taxable profit, leading to higher tax payment.

Compare FIFO methods (first export first) and LIFO (imported after export)

Want to know between FIFO and LIFO should choose which method, between them are different, and update the following knowledge:

Choose FIFO or LIFO method?

When choosing between FIFO and LIFO, businesses need to consider the disadvantages along with the benefits of each method. FIFO is often prioritized in industries with short -term products and need to manage inventories continuously.

Meanwhile, Lifo can be more suitable for industries that inventory value tends to increase over time, although it can cause certain complexity in financial management.

Differences between FIFO and LIFO

The following statistics will help businesses understand the basic difference between what the LIFO principle compared to the principle of FIFO is:

What is the principle of FIFO and the knowledge to know about FIFO in import and export has been updated by Proship Logistics fully, the most detailed above. This is also a form of management selected to use much today. But each method whether it is FIFO or LIFO has its own advantages and disadvantages, so depending on the type of goods and specific business strategies of the business, choose accordingly.

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