FIFO sells the oldest cost, not the oldest box

FIFO does not track which carton actually left the shelf. It is a cost-flow assumption: the first cost in is the first cost out, so Cost of Sales takes the oldest purchase layer and Inventory keeps the newest, each at the price actually paid. Raise the units sold past 50 and watch which cost layer starts leaving next, then change the later purchase cost and watch where it lands.

FIFO cost layers

Cost +15% · 100 sold

Change the units sold and the later purchase cost. Watch which layer leaves first.

100 sold: 50@$20 + 50@$23

Units sold100 units

050100150

Second purchase cost vs $20+15%

−30%0%+30%

Revenue ($50 a unit)

$5,000

Cost of Sales

$2,150

Gross profit

$2,850

Inventory (balance sheet)

$1,150

Which way is the second purchase cost moving?

Know This

Under FIFO, Cost of Sales takes the oldest purchase costs first, so Inventory is left carrying the most recent costs, still historical cost, just the latest layer bought.

FIFO cost layers: how units sold split purchase costs between Cost of Sales and Inventory

FIFO sells the oldest cost, not the oldest box