How to Quickly Calculate Ending Inventory For Shopify Using FIFO in 2 Steps

Accurately calculating ending inventory, or otherwise known as closing inventory, is important when it comes to financial reporting and inventory management for Shopify D2C brands.

What is FIFO - A quick explanation

FIFO or First-In First-Out is an ending or closing inventory valuation method where the oldest inventory items are sold first. This approach is a natural flow of inventory and is particularly useful in industries where product freshness is crucial.

How to Calculate Ending or Closing Inventory Using FIFO?

Step 1: List Inventory Purchases and Sales: Start by listing your inventory purchases in the order they were acquired and note the cost of each batch.

Step 2: Track Sales: Record the number of items sold during the period.

Step 3: Calculate Sold Inventory Cost: Starting with the oldest inventory, calculate the cost of goods sold (COGS) based on the number of items sold. Then reconcile these figures with your cost of goods manufactured.

Step 4: Determine Remaining Inventory: The items not sold by the end of the period constitute your ending inventory.

Step 5: Apply the FIFO Ending Inventory Formula: Sum the cost of the remaining oldest items up to the total quantity left to find your ending inventory value.

Step-by-Step FIFO Calculation:

Let’s break the logic into a formulaic structure:

Identify Purchases (in order):
- Example:
  - 100 units @ $10 = $1,000
  - 150 units @ $12 = $1,800
  - 200 units @ $14 = $2,800
Total Units Purchased:
= 100 + 150 + 200 = 450 units
Total Units Sold:
= e.g., 300 units
Ending Inventory Units:
= Total Units Purchased – Total Units Sold
= 450 – 300 = 150 units
FIFO Ending Inventory Value:
- Pick the most recent purchases to calculate value of 150 units:
  - 200 units @ $14 → Take 150 units from this
  - Ending Inventory = 150 × $14 = $2,100

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FIFO Ending Inventory Formula‍

= (Cost per unit of most recent purchase × Quantity remaining from that purchase)

(Cost per unit of second most recent purchase × Quantity remaining from that purchase)
... (until total remaining inventory is accounted for)

Or, expressed more generally:

FIFO Ending Inventory = Σ (Unit Cost<sub>i</sub> × Quantity<sub>i</sub>)
where i starts from the most recent purchase and continues backward until the ending inventory quantity is fulfilled.

Analysing the value of FIFO for Shopify brands

A low FIFO turnover rate for Shopify brands suggests that inventory items remain in stock for a longer time before being sold.
Brands might be overstocking, which means they might be purchasing too much inventory upfront, leading to excess stock that ties up capital.
A high FIFO turnover rate indicates that inventory items are being sold quickly after they are stocked. This means there is consistent demand for the products. Learn how to properly calculate inventory turnover for your D2C brand.

How Prediko Simplifies FIFO Calculation for Shopify Brands?

Prediko’s 1-click integration with Shopify and multiple WMS’ will allow you to see the latest closing inventory for the whole business directly within the Prediko Buying Table.

You can also see closing inventory data by SKU or by product by using the 150+ filters in the buying table.

Prediko will also allow you to filter for whichever time period you want allowing you to get exact values even for historical time periods.

See how Leading eCommerce brands mastered their Shopify inventory with Prediko

Strategies to improve FIFO for Shopify D2C brands:

Accurate Demand Forecasting: Utilize sales data and market trends to predict future demand accurately. Tools like Prediko can easily be installed just for your Shopify store to make these predictions.
Optimize Your Warehouse Layout: Create an efficient design for your warehouse layout to facilitate easy access to older items, promoting their sale.
Collaborate with your sales, marketing, and finance teams: Refine sales forecasts based on multiple perspectives ensuring a more accurate demand forecast. Or you can generate one using Prediko in just 1-click
Adjust inventory levels based on seasonal demand fluctuations: Ensure optimal stock levels throughout the year.

Compare the FIFO to the LIFO ending inventory calculation method.