What are the pros and cons of fifo?

Answer 1

First in, first out (fifo) is a stores/stock-keeping policy which moves the oldest stock out first, before moving newer stock out into the production lines or on to the shelves for selling to the public.

Fifo can be more of an assumption than a reality. In valuing stock, and the costs of stock sold, the 'fifo' assumption is that old stock was moved/sold first, in strict chronological order, and it therefore becomes a simple mathematical calculation to determine what cost prices apply to the present stocks, and what the 'costs of goods sold' actually were, thus enabling computation of profits.

The longer that old stock accumulates, the greater the likelihood that it will become obsolete and un-saleable or will somehow deteriorate by the passage of time.

If the fifo principle is really adhered to, old stock will never accumulate in the stores, and losses associated with old stock will be eliminated or minimised.

Consequently, on the basis of the above, there appears to be clear economic and common-sense advantages in favor fifo.

However, there are also a strong economic arguments in favor of lifo! (last in, first out)

For other meanings of fifo, and more information about fifo, and comparisons with lifo, see Related links below.

Answer 2

Some of the disadvantages involving first in first out method concerns inconsistencies in pricing of products and clerical errors due to changes in product prices

Answer 3

First in first out Con is you will have a higher tax payable for tax purposes, and the older inventory will sit "on the books."