Last In First Out (LIFO) Method Definition:

A method that operates under the assumption that materials issued should carry the cost of the most recent purchase, although the physical flow may actually be different. In other words, the last receipt of materials are issued first for production and the earlier receipts are issued last  i.e., in the reverse to FIFO method. Under this method, the price of the last lot received is charged for all the issues until all units from this lot have been issued, after which the price of various lots received becomes the issue price. When a new delivery is received before the first lot is fully used or issue, the new delivery price becomes the “last-in” price and is used for pricing issues until either the lot is exhausted or a new delivery is received.

Relevant terms:

• First in first out (FIFO) Method
• Weighted average method

Other Related Accounting Articles:

• First in First Out – FIFO Method Definition
• Weighted Average Method Definition
• First In First Out (FIFO) – Materials and Inventory Costing Method
• Equivalent Units of Production
• Specific Cost Method Definition
• Cost Accounting Procedure for Defective Work
• Inventory Valuation Methods
• Explaining Assets in terms of Accounting
• Standard Cost Method Definition
• Relevant Costing Technique