Heres an example with calculations: nnote: cogs refers to the cost of the goods that are sold by the company. Assume the following two companies sell hairbrushes for $10 a piece. the first set of 10 brushes in their inventory cost the companies $1 each. Both companies then obtained another 10 brushes, but this time paid $2 each to bring them into their inventory. So at this point, each company has a total of 20 hairbrushes in their inventory and the total cost to bring these brushes into their inventory was $30 (10
brushes x $1 + 10 brushes x $2). Question: now, what would the inventory value be for the fifo company be if they sold 15 hairbrushes? The fifo company sold 15 hairbrushes for $10 each for total revenue of $150. Since the first brushes in are deemed to be the first brushes sold, the company sold 10 of the brushes that originally cost them $1 each and they sold 5 brushes that originally cost them $2 each. Total revenue = $150 (15 brushes x $10 each) cogs = $20 (10 x $1 + 5 x $2)
inventory value = $10 (5 brushes left x $2) question: what would the inventory value be for the lifo company be if they sold 15 hairbrushes? The lifo company sold 15 hairbrushes for $10 each for a total revenue of $150. Since the last brushes in are deemed to be the first brushes sold, the company sold 10 of the brushes that originally cost them $2 each and they sold 5 brushes that originally cost them $1 each. Total revenue = $150 (15 brushes x $10 each) cogs = $25 (10 x $2 + 5 x $1) inventory value = $5 (5 brushes left x $1).