FIFO vs weighted average

Two ways to cost inventory issues: FIFO assumes oldest receipts leave first; weighted average blends remaining value across remaining quantity.

Also searched as: FIFO costing, moving average cost, WAC inventory, inventory valuation method

Costing method changes COGS and ending inventory when purchase prices move. FIFO keeps layers; a sale peels the oldest layer first. Weighted average (WAC) recomputes a single unit cost after each receipt (or periodically) and applies that cost to issues.

Neither method is “more correct” in the abstract — accounting policy and tax rules matter. What software must do is apply one method consistently and show the arithmetic, not silently switch when prices spike.

Omnizone’s live inventory path is weighted average. If your auditors require strict FIFO layers for statutory filings, say so early — do not assume every mid-market product keeps full FIFO layers.

Same movements, two COGS figures

Buy 10 at $5.00, then 10 at $7.00. Sell 12 units.

1. FIFO COGS = (10 × $5) + (2 × $7) = $50 + $14 = $64.
2. FIFO ending = 8 × $7 = $56.
3. WAC unit = (10×5 + 10×7) ÷ 20 = $120 ÷ 20 = $6.00.
4. WAC COGS = 12 × $6 = $72; ending = 8 × $6 = $48.

FIFO COGS $64 vs WAC COGS $72 on identical quantity — an $8 policy difference, not an ops error.

Related modules

• Inventory & assets
• Finance & ledger

Related terms

• Perpetual inventory
• Cost of goods sold (COGS)
• Landed cost

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