The inventory managements and cost of goods sold

Inventory management is one of the most essential things to reduce the cost of goods sold. When you are storing inventory without managing the selling and purchasing speed. Then it can be a reason for the increasing cost of the goods sold due to carrying cost and storing costs. If the inventory management system is inefficient then you may lose items before presented for sale. You need to use online assistance like the FIFO & LIFO Calculator to manage the pace and speed of the inventory. Experts says that advertising can increase your profitability by up to 30 %, but inventory management can increase your profitability by up to 70 %

In this article, we are discussing what is the inventory management system and how to find ending inventory.

The Inventory management system:

If you need to understand the inventory management system. Then it is necessary to understand the three stages of the inventory.

• Good in the stage of raw material
• Goods that are in the production stage
• Goods that are ready for sales

The formula for managing the inventory is as follows:

EI = BI+(Net purchase-COGS)

Where:

EI = Ending inventory

BI = Beginning inventory

Net purchase = Purchases of the company

COGS = Cost of the goods sold.

You can estimate and predict future requirements of the inventory at the raw material stage and the selling stage.

There are two ways for managing the inventory:

• FIFO (First In and First out) method
•  LIFO (last In and First out) method

We are describing both methods below:

Also Read: Top Inventory Management Software in 2023

The method of FIFO:

If you are using the FIFO inventory method(First In and First out) method, then you are going to sell the inventory which is purchased first. This would make it manage the inventory in sequence. The FIFO & LIFO Calculator makes it possible to manage the inventory by the FIFO method. This approach is common and you are going to sell the product before it expires. Inventory management is essential to reduce expenses.

Example of FIFO:

Consider there are various purchases done on different time frames, the first purchase has been 10 units and the purchasing cost of $150per unit, the second purchase has been 15 units and the purchasing cost of $100 per unit, the third purchase has been 25 units and the purchasing cost $200 per unit. Then what is the FIFO inventory model for selling the product and managing inventory?

Given:

First purchase = 10 units

Price = $150per unit

Second purchase = 15 units

Price = $100per unit

Third purchase = 25 units

Price = $ 200 per unit

Solution:

Cost of Goods Purchased = 8000

Cost of Goods Sold (COGS) = 5000

Ending Inventory Value = 3000

Also Read: Best Free Open Source Inventory Management Software 2023

LIFO (Last In and First out) method:

The LIFO (Last In and First out) is another technique for managing the inventory. In this method, you are going to remove the inventory which was purchased at the last LIFO.

LIFO example:

Now take into the considered purchase on different time frames, the first purchase has been 10 units and the purchasing cost of $ 200 per unit, the second purchase has been 10 units and the purchasing cost of $150 per unit, the third purchase has been 5 units and the purchasing cost $100 per unit. Then what is the LIFO inventory model for selling the product and managing inventory?

Solution:

Cost of Goods Purchased = 5000

Cost of Goods Sold (COGS) =3000

Ending Inventory Value = 2000

Conclusion:

The FIFO & LIFO Calculator actually makes it easy to know how to find ending inventory and what purchased cost and the cost of the goods sold. This makes it possible to manage the inventory for the production system and save carrying costs.