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In inventory valuation, it is assumed that the first items placed in inventory are sold first.

Use for items with a limited shelf life, because the oldest goods need to be sold before they pass their sell-by date.Īn item's unit cost is the actual value of any receipt of the item, selected by the FIFO rule.

For more information, see Design Details: Costing Methods. The following table provides best practices on how to set up the Costing Method field. Setting the correct costing method according to item type and business environment is important to ensure economical inventories. The Costing Method on the item card defines item's cost flow is recorded and whether an actual or budgeted value is capitalised and used in the cost calculation.