Last in, first out method (LIFO) method

Last in, first out method (LIFO) method is suitable when prices are rising because material will be issued from the latest consignment at a price which is near to current price level.There are companies that have to pick LIFO, rather than FIFO, to manage their inventory. Sellers of homogeneous commodity products such as stone, sand and bricks usually have to take inventory from the top of large stacks or piles, leaving the oldest batches to sit at the bottom of the piles for much longer than newer batches. Companies such as vending machine operators also have to choose LIFO for inventory management, as the first products they put in their machines are sold last.

The use of LIFO method,

  • Like FIFO method, it is simple and easy to operate.
  • In this method, cost of material is recovered from production because cost of material is charged to production.
  • It is more suitable in the times of rising prices because materials arc issued at current market prices. As a result the cost of production will increase and profit will decrease and lower profit reduces burden of income tax.
  • In this method production is charged at the recent prices because materials are issued from latest consignment.