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Using FIFO, you calculate the cost of goods sold expense as follows: In short, you use the first three units to calculate cost of goods sold expense. The cost of the ending inventory asset, then, is $106, which is the cost of the most recent acquisition.The $412 total cost of the four units is divided between $306 cost of goods sold expense for the three units sold and the $106 cost of the one unit in ending inventory.The total cost has been accounted for; nothing has fallen between the cracks.he $412 total cost of the four units is divided between $306 cost of goods sold expense for the three units sold and the $106 cost of the one unit in ending inventory. The total cost has been accounted for; nothing has fallen between the cracks.
In periods of declining materials prices, the FIFO method yields the same results. The cost flow assumption is a minor item when inventory costs are relatively stable over the long term, since there will be no particular difference in the cost of goods sold, no matter which cost flow assumption is used.or example: 1  FIFO cost flow assumption. 2  Under the first in, first out method, you assume that the first item purchased is also the first one sold. 3  Thus, the cost of goods sold would be $50. 4  Since this is the lowest-cost item in the example, profits would be highest under FIFO. 5  LIFO cost flow assumption.