Why the oldest stock should go first
- Nothing gets old at the back. Milk, flour, drinks and drugs have dates. Stock that sits behind newer stock expires there.
- Packaging stays fresh. Even goods that don't expire fade, tear and gather dust.
- Your cost is honest. When prices rise, the old stock was cheaper. Selling it first, and costing it at what you actually paid, shows your true profit.
FIFO on the shelf
- When a delivery arrives, move the old stock to the front and put the new stock behind it.
- Write the arrival date on cartons and bags with a marker. It takes seconds and settles every argument.
- In the store room, keep each product in one place, oldest at the door.
- Check dated goods at every count, and sell or return anything close to its date first.
FIFO in your records: what stock really cost
Say you bought 10 bags of rice at ₦40,000 and then, when the price rose, 10 more at ₦45,000. You sell 12 bags. With FIFO the first 10 sold cost ₦40,000 each and the next 2 cost ₦45,000:
| Bags sold | Cost each | Cost |
|---|---|---|
| 10 | ₦40,000 | ₦400,000 |
| 2 | ₦45,000 | ₦90,000 |
| 12 | ₦490,000 |
The 8 bags left are the ₦45,000 ones, worth ₦360,000. If you priced everything on the newest cost, you would think the first 12 cost ₦540,000 and understate your profit; on the oldest cost you would overstate it. FIFO gives the real figure. See how to know your real cost price.