First in first out method in inventory

In business, the term inventory is used to describe the goods that a company has in its possession at any given time.

For companies engaged in manufacturing activities inventories are divided into raw materials, partially completed products, and finished goods.

The First In, First Out or FIFO method assumes that the goods that are purchased first are then issued or sold first.

The first idea that comes to mind when most people think about fairness is that whoever has been waiting the longest should be served first.

Queues are a natural model for many everyday phenomena, and they play a centrals role in numerous application.

So the cost of the inventory item is based on the most recent purchases. This method is widely used because the value of the inventory should be the closest to the cost of actually replacing the items in the inventory. 

FIFO is used to manage assumptions of cost flows related to inventory, stock repurchases and various other counting purposes.

This method assumes the first goods purchased are made the first goods sold. In some companies, the first units in must be the first out to avoid losses from spoilage.

Such items as fresh dairy products, fruits and vegetables should be sold on a FIFO basis.
First in first out method in inventory