LIFO Inventory Valuation

Number of units sold
$
Cost of most recent purchases
$
Cost of earlier purchases
Units sold from prior cost layer
Finance

Calculate LIFO (Last-In, First-Out) inventory cost. LIFO values inventory at most recent purchase prices, useful in inflationary periods to reduce taxable income.

Formula

LIFO COGS = (Recent Units × Recent Cost) + (Prior Units × Prior Cost)
  • LIFO assumes most recent purchases sold first; reduces income in inflation; tax benefits; requires inventory layering

LIFO COGS

Inputs
  • Units Sold: 100
  • Recent Purchase Cost (per unit): 50 $
  • Prior Purchase Cost (per unit): 40 $
  • Units from Prior Layer: 20

80 units @ $50 + 20 units @ $40 = $4400 total COGS

Frequently asked questions

How does LIFO differ from FIFO?
LIFO uses most recent costs (last in, first out); FIFO uses oldest costs (first in, first out).
Why use LIFO?
In inflation, LIFO increases COGS and reduces taxable income; defers taxes but can undervalue inventory.
Is LIFO allowed in all countries?
LIFO is allowed under US GAAP but prohibited under IFRS in most countries.