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 methods 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 may be used even though physical withdrawal is in a different order.
Discussion Questions and Answers: Learning Objectives: Find answers of the general questions about Fist in First Out and Average Method of process costing system. Questions: How does the FIFO method differ from the average costing method of process costing system? See answer. Why are
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 in First Out-FIFO Method Definition: A method that operates under the assumption that the materials which are received first are issued first and, therefore, the flow of cost should be in the same order. Issues are priced at the same basis until the