FIFO vs weighted average costing
FIFO values the stock you sold at the cost of the oldest units you bought. Weighted average values it at the blended cost of everything you hold. Both are accepted, but they produce different profit figures when prices move.
Also searched as: inventory costing methods, first in first out
Updated July 2026
In a stable market the two methods land in roughly the same place. In a market where your purchase price moved 30% over a year, they do not, and the difference flows straight into reported gross profit.
FIFO usually reflects physical reality more closely, especially for anything perishable, because you genuinely do sell the oldest stock first. Weighted average is simpler to run and less sensitive to the order in which things happen to be received.
The important part is picking one and applying it consistently. Switching methods changes your reported profit without anything about the business changing, which is exactly the kind of thing an auditor asks about.
Same sale, two answers
You bought 100 units at $8 in January and 100 at $12 in June, then sold 100. Under FIFO the cost is $800. Under weighted average it is $1,000. Same stock, same sale, $200 difference in reported gross profit.
Related terms
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