During my undergraduate studies, I took several subjects related to cost accounting, in which we were taught the different methods of valuing inventories, and I thought it would be interesting to explain them briefly in the blog as I find them useful to learn how to value warehouse stock.

There are three methods for inventory valuation: FIFO (First In, First Out), LIFO (Last In, First Out), and WAC (Weighted Average Cost).

• FIFO (First In, First Out). As its name suggests, what has entered the warehouse first, should be the first to leave. This is the most commonly used method in logistics, especially for products that have an expiration date, in order to reduce losses, since the products that expire first will be the first to leave. An example of this could be food or medicines, even fashion items.
• LIFO (Last in, First Out). In this case, the opposite happens: the last products to enter the warehouse are the first to leave it. Therefore, this method is ideal for products that do not have an expiration date.

FIFO VS LIFO

• WAC (Weighted Average Cost). This method of stock valuation no longer takes into account the inputs and outputs as in the FIFO and LIFO, instead it performs a weighted average of the different prices of the products that have entered the warehouse by this formula: WAC =(Q1·P1) + (Q2·P2)  / Q1+Q2.

I have made a brief example in Excel of each of these methods because I think it is easier to understand: