What does FIFO stand for?

FIFO stands for First-In, First-Out. As an inventory method, it assumes the oldest units you purchased are the first ones sold, so cost of goods sold draws on your earliest cost layers and ending inventory is valued at your most recent purchase prices.

How do I calculate cost of goods sold using FIFO?

Track each purchase as a cost layer and consume the oldest layer first. Sum the cost of the layers you used up to cover the units sold, that total is your FIFO COGS. For example, selling 150 units across a $10 layer of 100 and a $14 layer gives COGS of $1,000 + $700 = $1,700.

What is the difference between FIFO and weighted average?

FIFO consumes the oldest cost layers first, while weighted average blends all costs into one per-unit figure. In a period of rising costs, FIFO reports a lower COGS and higher profit than weighted average, which reacts more gently to price swings.

Does FIFO increase or decrease profit?

When unit costs are rising, FIFO reports a lower COGS and therefore a higher profit than LIFO or weighted average, because the older, cheaper costs flow to COGS. That can mean a higher near-term tax bill but also a stronger inventory value on the balance sheet.

Is FIFO better than weighted average for Amazon sellers?

Neither is universally better. FIFO suits products where physical flow is oldest-first or where batch and shelf-life tracking matter; weighted average is simpler for high-volume SKUs bought repeatedly. Pick one, build it on landed cost, and apply it consistently.

Glossary

What is FIFO?

First-In, First-Out — inventory valuation that consumes the oldest cost layers first.

FIFO stands for First-In, First-Out: an inventory valuation method that assumes the oldest units you bought are the first ones sold. When you record a sale under FIFO, you draw down your earliest cost layer first, so cost of goods sold reflects what your oldest stock cost, and your remaining inventory is valued at your most recent purchase prices. It is the most intuitive of the inventory methods because it mirrors how goods physically move through most warehouses, oldest stock out the door first.

For ecommerce and Amazon sellers buying the same SKU at prices that drift over time, FIFO matters because of how it splits cost between COGS and ending inventory. In a period of rising unit costs, FIFO assigns the older, cheaper costs to what you sold and leaves the newer, higher costs sitting in inventory, which produces a lower COGS and a higher reported profit than weighted average. Knowing which way your method leans is the difference between books that reflect reality and a margin number you cannot trust.

How to calculate FIFO cost of goods sold

Under FIFO you track inventory in cost layers, each purchase is its own layer at its own landed cost, and you consume them in the order they arrived. To compute COGS, you peel units off the oldest layer first; when that layer is exhausted, you move to the next. The cost of the layers you consumed is your FIFO cost of goods sold, and whatever layers remain make up ending inventory.

Worked example: you buy 100 units at $10 (layer 1), then 100 units at $14 (layer 2). You sell 150 units. FIFO consumes all 100 from layer 1 ($1,000) plus 50 from layer 2 (50 x $14 = $700), so COGS is $1,000 + $700 = $1,700. Ending inventory is the 50 units left in layer 2, valued at 50 x $14 = $700. Note how the higher $14 cost ends up in ending inventory, not COGS, exactly the opposite of how it would split under a method that consumes newest-first.

•Track each purchase as a cost layer at its landed cost
•Layer 1: 100 units x $10 = $1,000
•Layer 2: 100 units x $14 = $1,400
•Sell 150 units: consume 100 from layer 1 ($1,000) + 50 from layer 2 ($700)
•FIFO COGS = $1,700; ending inventory = 50 units x $14 = $700

FIFO vs LIFO vs weighted average

FIFO is one of three common inventory methods. LIFO (Last-In, First-Out) does the reverse, consuming the newest cost layers first, which in a rising-cost environment produces a higher COGS and lower profit, but LIFO is barred under IFRS and rare outside specific US tax situations. Weighted average blends all costs into one per-unit figure and reacts more gently to price swings than either FIFO or LIFO.

The practical difference is timing and tax. When unit costs are rising, FIFO reports the lowest COGS and the highest profit of the three (LIFO the highest COGS, weighted average in between). That higher FIFO profit can mean a higher tax bill in the near term, while the higher inventory value strengthens your balance sheet. There is no universally correct choice, but you must pick one method, apply it consistently, and understand which way it pushes your reported margin.

•FIFO: oldest costs to COGS; in rising costs, lowest COGS, highest profit
•LIFO: newest costs to COGS; in rising costs, highest COGS, lowest profit (not allowed under IFRS)
•Weighted average: one blended cost; sits between FIFO and LIFO
•Whichever you choose, apply it consistently across periods

When FIFO is the right choice for sellers

FIFO is a strong default when the physical flow of your goods actually is oldest-first, which it usually is, and when batch or shelf-life tracking matters. Products with expiration dates, lot numbers, or version changes benefit from FIFO because the cost layers line up with the units you are genuinely selling, and your ending inventory reflects current replacement cost rather than stale prices.

The trade-off is bookkeeping effort: FIFO requires you to maintain cost layers per SKU and consume them in order, which is tedious by hand across a large, fast-moving catalog. This is precisely the kind of work accounting software should carry. Whether you run FIFO layers or perpetual weighted average, BeanHawk values inventory from landed cost so your cost of goods sold reflects the real all-in cost of each unit, and your books stay cash-accurate.

FIFO and your landed cost

FIFO is only accurate if each cost layer is built on true landed cost, the supplier price plus freight, duty, taxes, and prep for that specific shipment, rather than just the invoice. Because FIFO keeps your most recent costs in ending inventory, getting landed cost right on the latest layers directly affects your balance-sheet inventory value, and getting it right on older layers directly affects the COGS you book today.

Sloppy landed-cost allocation distorts FIFO in both directions: understated COGS inflates current profit, and an understated inventory value weakens your balance sheet. Building each FIFO layer from fully allocated landed cost gives you a defensible inventory valuation and a gross margin you can actually trust, which is what flows through to your profit and loss statement and your tax return.

Frequently asked questions

What does FIFO stand for?: FIFO stands for First-In, First-Out. As an inventory method, it assumes the oldest units you purchased are the first ones sold, so cost of goods sold draws on your earliest cost layers and ending inventory is valued at your most recent purchase prices.
How do I calculate cost of goods sold using FIFO?: Track each purchase as a cost layer and consume the oldest layer first. Sum the cost of the layers you used up to cover the units sold, that total is your FIFO COGS. For example, selling 150 units across a $10 layer of 100 and a $14 layer gives COGS of $1,000 + $700 = $1,700.
What is the difference between FIFO and weighted average?: FIFO consumes the oldest cost layers first, while weighted average blends all costs into one per-unit figure. In a period of rising costs, FIFO reports a lower COGS and higher profit than weighted average, which reacts more gently to price swings.
Does FIFO increase or decrease profit?: When unit costs are rising, FIFO reports a lower COGS and therefore a higher profit than LIFO or weighted average, because the older, cheaper costs flow to COGS. That can mean a higher near-term tax bill but also a stronger inventory value on the balance sheet.
Is FIFO better than weighted average for Amazon sellers?: Neither is universally better. FIFO suits products where physical flow is oldest-first or where batch and shelf-life tracking matter; weighted average is simpler for high-volume SKUs bought repeatedly. Pick one, build it on landed cost, and apply it consistently.

Go deeper

COGS for Amazon Sellers: Getting Cost of Goods Sold Right

See what Amazon owes you — free

Connect your seller account and get a free reimbursement audit. No credit card, keep 100% of what you recover.