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    Bba-6 Szabist: Submitted: TO

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    shahidbhutt
    This document discusses the FIFO (first-in, first-out) costing method. It defines FIFO costing as a method that uses the cost of the oldest inventory items first. The document lists advantages of FIFO costing such as using materials in a logical order and representing efficient materials control. An example calculation is provided for a potato seller applying FIFO costing over 15 transactions. The calculation tracks purchases and sales to determine ending inventory balances, actual costs, sales amounts, and total profit.

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    Bba-6 Szabist: Submitted: TO

    Uploaded by

    shahidbhutt
    27 views7 pages
    This document discusses the FIFO (first-in, first-out) costing method. It defines FIFO costing as a method that uses the cost of the oldest inventory items first. The document lists advantages of FIFO costing such as using materials in a logical order and representing efficient materials control. An example calculation is provided for a potato seller applying FIFO costing over 15 transactions. The calculation tracks purchases and sales to determine ending inventory balances, actual costs, sales amounts, and total profit.

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    F. Accounting

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    This document discusses the FIFO (first-in, first-out) costing method. It defines FIFO costing as a method that uses the cost of the oldest inventory items first. The document lists advantages of FIFO costing such as using materials in a logical order and representing efficient materials control. An example calculation is provided for a potato seller applying FIFO costing over 15 transactions. The calculation tracks purchases and sales to determine ending inventory balances, actual costs, sales amounts, and total profit.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    27 views7 pages

    Bba-6 Szabist: Submitted: TO

    Uploaded by

    shahidbhutt
    This document discusses the FIFO (first-in, first-out) costing method. It defines FIFO costing as a method that uses the cost of the oldest inventory items first. The document lists advantages of FIFO costing such as using materials in a logical order and representing efficient materials control. An example calculation is provided for a potato seller applying FIFO costing over 15 transactions. The calculation tracks purchases and sales to determine ending inventory balances, actual costs, sales amounts, and total profit.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 7

    BBA- 6 SZABIST

    Submitted : TO Mr. Ghulam Mustafa Shaikh


    Table of Contents

    FIFO COSTING METHOD.................................................................................................................3


    Definition:..............................................................................................................................................3
    It is a method of valuing the cost of goods sold that uses the cost of the oldest items in inventory first..3
    Explanation:...........................................................................................................................................3
    Advantages of First in First out (FIFO) Costing Method:..................................................................3
    Calculations:..........................................................................................................................................4

    2
    FIFO COSTING METHOD

    Definition:

    It is a method of valuing the cost of goods sold that uses the cost of the oldest items in inventory
    first.

    Explanation:

    The first in first out (FIFO) method of costing is used to introduce the subject of materials
    costing. The FIFO method of costing issued materials follows the principle that materials used
    should carry the actual experienced cost of the specific units used. The method assumes that
    materials are issued from the oldest supply in stock and that the cost of those units when placed
    in stock is the cost of those same units when issued. However, FIFO costing may be used even
    though physical withdrawal is in a different order.

    Advantages of First in First out (FIFO) Costing Method:

    Advantages claimed for first in first (FIFO) out costing method are:

    1. Materials used are drawn from the cost record in a logical and systematic manner.
    2. Movement of materials in a continuous, orderly, single file manner represents a condition
    necessary to and consistent with efficient materials control, particularly for materials
    subject to deterioration, decay and quality are style changes.

    FIFO method is recommended whenever:

    1. The size and cost of units are large.


    2. Materials are easily identified as belonging to a particular purchased lot.
    3. Not more than two or three different receipts of the materials are on a materials card at
    one time.

    3
    Calculations:

    This calculation is based on the following transactions:

    Nature of Business:

    Mohammad Arslan So/O: Muhammad Nabi bux Kori stared his business from 1985, and selling
    all vegetables and other consuming goods. He is located at Shahi bazzar Naudero and has Huge
    reputation in the market.

    April: A seller Sells Potatoes, and these are the transactions of 15 days:

    (01) Beginning balance: 800 units @ Rs.2 per unit and Sold 700 units @ Rs.3 per unit.
    (02) Received 500 units @ Rs.2 per unit and sold 500 units @ Rs.3 per unit.
    (03) Received 500 units @ Rs.2 per unit and sold 450 units @ Rs.3 per unit.
    (04) Received 600 units @ Rs.2 per unit and sold 520 units @ Rs. 3 per unit.
    (05) Received 450 units @ Rs.2 per unit and sold 475 units @ Rs.3 per unit.
    (06) Received 450 units @ Rs.2 per unit and sold 475 units @ Rs.3 per unit.
    (07) Received 500 units @ Rs.2 per unit and sold 500 units @ Rs.3 per unit.
    (08) Received 500 units @ Rs.2 per unit and sold 450 units @ Rs.3 per unit.
    (09) Received 600 units @ Rs.2 per unit and sold 520 units @ Rs. 3 per unit.
    (10) Received 450 units @ Rs.2 per unit and sold 475 units @ Rs.3 per unit.
    (11) Received 450 units @ Rs.2 per unit and sold 475 units @ Rs.3 per unit.
    (12) Received 500 units @ Rs.2 per unit and sold 500 units @ Rs.3 per unit.
    (13) Received 500 units @ Rs.2 per unit and sold 450 units @ Rs.3 per unit.
    (14) Received 600 units @ Rs.2 per unit and sold 520 units @ Rs. 3 per unit.
    (15) sold 480 units @ Rs.3 per unit.

    4
    Calculation for the above transactions would be as follows:

    FIFO Costing Method

    Purchase Cost of Goods Sold Balance

    Date Units Cost Total Unit Cost Total Unit Cost Total
    01 800 2 1600 800 2 1600
    700 2 1400
    100 2 200
    02 500 2 1000 500 2 1200
    100 2 200
    400 2 800
    100 2 200
    03 500 2 1000 500 2 1200
    100 2 200
    350 2 700
    150 2 300
    04 600 2 1200 600 2 1500
    150 2 300
    370 2 740
    230 2 460
    05 450 2 900 450 2 1360
    230 2 460
    345 2 690
    155 2 310
    06 450 2 900 450 2 1110
    155 2 310
    320 2 640
    120 2 240
    07 500 2 1000 500 2 1240
    120 2 240
    380 2 760
    120 2 240
    08 500 2 1000 500 2 1240

    5
    120 2 240
    330 2 660
    170 2 340
    09 600 2 1200 170 2 340 600 2 1540
    350 2 700
    250 2 500
    10 450 2 900 450 2 1400
    250 2 500
    225 2 450
    375 2 750
    11 450 2 900 450 2 1650
    375 2 750
    100 2 200
    350 2 700
    12 500 2 1000 500 2 1700
    350 2 700
    150 2 300
    350 2 700
    13 500 2 1000 500 2 1700
    350 2 700
    100 2 200
    400 2 800
    14 600 2 1200 600 2 2000
    400 2 800
    120 2 240
    480 2 960
    15 480 2 960 480 2 960
    00000

    Actual Cost: - 7400x2= 14800

    Selled: - 7400x3= 22200

    _____________________________

    6
    Profit: - 7400

    Conclusion:-

    The conclusion can be drawn from the following calculation; the seller sells potatoes on the basis
    of FIFO method and has generated more profit by selling goods on the higher price as compared
    to cost that has been actual price of good.

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