Enter the total cost of the most recent units put in inventory and the total number of units sold in the time period to calculate the COGS using LIFO.

## LIFO Formula

The following formula is used to calculate the COGS using LIFO.

COGS = CU * US

- Where COGS is the cost of goods sold ($)
- CU is the cost per unit of the most recent units added to inventory ($/unit)
- US is the total number of units sold (units)

## LIFO Definition

**What is LIFO? **

LIFO stands for last-in, first-out. It’s a method of accounting used in businesses where the most recent cost (last-in) of inventory is used as the cost basis for the most recent sold (first-out) units of a good.

For example, if a business owner stores inventory every month, and the first month he adds inventory at a cost of $50.00, but then in the current month the cost went up to $100.00/ea, then they would use $100.00 as the cost basis for any units sold that month.

This reduces the total profit realized for that month, but it will reduce taxes.

## LIFO Example Problem

How to calculate COGS from LIFO?

**First, determine the most recent cost per unit of inventory.**In this example, a business owner typically stocks a product at a cost of $45/ea, however, this month the price went up to $50/ea. So, $50 should be used as the most recent cost per unit.

**Next, determine the total number of units sold this month.**The business owner stocked 100 goods this month but only sold 80.

**Finally, calculate the COGS using the LIFO method.**Using the formula above, the cost of goods sold is calculated as:

COGS = CU*US

COGS = $50*$80

COGS = $4,500.00