FIFO

What is FIFO in inventory management? 

FIFO stands for “First In, First Out.” It’s a method used for managing inventory where the oldest stock items are sold or used first, ensuring that goods are rotated in the order they were acquired. 

How does FIFO work in inventory management? 

FIFO works by ensuring that the oldest inventory items are used or sold before newer ones. When new stock is purchased or produced, it is added to the back of the inventory line, and items at the front of the line are used or sold first. 

What are the benefits of using FIFO in inventory management? 

Ensures freshness: FIFO helps prevent spoilage and obsolescence by ensuring that older inventory is used before newer inventory. 

• Accurate valuation: It provides a more accurate representation of costs and helps prevent inventory write-downs. 
• Simplifies inventory management: FIFO is easy to understand and implement, making inventory management more straightforward. 

What industries commonly use FIFO? 

FIFO is commonly used in industries with perishable goods or goods with a limited shelf life, such as food and beverage, pharmaceuticals, and electronics. 

What are the drawbacks of FIFO? 

• Potential for waste: FIFO may result in waste if older inventory items become obsolete or spoil before they can be used. 
• Increased holding costs: In some cases, holding onto older inventory items longer than necessary may increase storage costs.