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Using FIFO, you calculate the cost of goods sold expense as follows: In short, you use the first three units to calculate cost of goods sold expense. The cost of the ending inventory asset, then, is $106, which is the cost of the most recent acquisition.The $412 total cost of the four units is divided between $306 cost of goods sold expense for the three units sold and the $106 cost of the one unit in ending inventory.The total cost has been accounted for; nothing has fallen between the cracks.he $412 total cost of the four units is divided between $306 cost of goods sold expense for the three units sold and the $106 cost of the one unit in ending inventory. The total cost has been accounted for; nothing has fallen between the cracks.
Under FIFO, the goods that were placed in inventory first are assumed to be the initial units sold. Therefore, the cost of goods sold is equal to 10 units at $2 each or $20 plus 20 units at $3 each or $60 for a total of $80. As a result, the ending inventory is equal to 30 units at $4 per unit or $120.he LIFO, or last-in, first-out, procedure assumes that goods purchased last are the first goods sold. In turn, FIFO -- or first-in, first-out -- assumes that goods purchased first are the initial goods sold.