FIFO in IZI: How Cost of Goods Sold Is Calculated

FIFO in IZI: How Cost of Goods Sold Is Calculated

FIFO is the rule by which IZI determines at what price to deduct an item from warehouse stock on every sale. Understanding it matters for one reason: it determines how accurately the system shows your bar’s margin.

How It Works

FIFO (first in, first out) — when an item is sold, the system takes the cost from the earliest batch that has not yet been fully consumed.

In practice: every time you process a receipt, IZI records:

• the receipt date
• the quantity
• the purchase price per unit

This is the “batch.” On the next sale from the bar catalog, the system automatically finds the oldest unclosed batch and takes the cost from it.

Calculation Example

Say your bar sells a soft drink. There were two purchases over a quarter:

Date	Quantity	Purchase Price
1 March	30 cans	P₁
15 April	40 cans	P₂ (higher — supplier raised price)

By 1 May, 35 cans have been sold. IZI calculates cost as:

First 30 cans → at price P₁ (entire first batch)
Next 5 cans → at price P₂ (start of second batch)

Total COGS for 35 cans = 30 × P₁ + 5 × P₂

Remaining stock: 35 cans, all at price P₂.

If the purchase price had not changed (P₁ = P₂), the result would be the same — the consumption method would not matter. But as soon as the price changes, the method determines what goes into cost.

How IZI Tracks Batches

Behind the scenes, the system maintains a queue of batches for each item. A new receipt adds a batch to the end of the queue. On a sale, the system “bites” from the front batch:

1. If the first batch has enough stock — the entire sale is costed at its price
2. If the first batch is insufficient — part is taken from it, the remainder from the next
3. When a batch is fully consumed — it is removed from the queue, and the next one becomes current

This process happens automatically on every bar sale, every manual write-off, and when calculating discrepancies in a stock count.

Impact on Margin

Margin per item is calculated as:

Margin = Selling Price − FIFO Cost

With stable purchase prices, margin is predictable. When prices change:

• If purchase prices rose: FIFO first consumes old (cheaper) batches, showing higher calculated margin. As old batches are exhausted, margin declines to the true level of new prices.
• If purchase prices fell: FIFO first consumes old (more expensive) batches, temporarily showing lower margin.

This matters for pricing decisions: if a supplier raises their price, you will see it in the report after a delay — once old batches run out.

Practical Implications for Owners

Do Not Delay Entering Invoices

The most common mistake — accepting goods physically but entering the invoice at end of week or month. During that gap the system has no knowledge of the new batch and starts “drawing” from the old one, sometimes going negative or showing incorrect margin.

Rule: every delivery is processed in the system on the day of receipt, before sales from that batch begin.

Accurate Purchase Prices

If a price is entered “approximately” or rounded off — FIFO will calculate margin with that inaccurate figure. Tracing discrepancies months later becomes difficult.

Old Unsold Batches

If an item sits without selling, old batches with outdated prices accumulate in the queue. When sales suddenly pick up, the first units are costed at the old price — margin will look anomalously high or low. Regular stock counts help keep data in order.

Where to See FIFO Results

The cost calculated by FIFO is visible in:

• COGS Report — cost per item and total for the bar for a period. More detail → COGS Report and Bar Margin
• Movement History — each transaction shows which batch was consumed and at what price
• Item Card — current batch queue with prices and remaining quantities

Errors That Distort FIFO

Error	Consequence
No purchase price on receipt	Cost = 0, margin inflated by 100%
Wrong price (typo)	Margin for the entire batch calculated with the error
Duplicate receipt	Stock doubled, extra batch in queue
Items sold before receipt was processed	Sales went negative without a batch; FIFO did not work for those units

If you see implausibly high or zero margin on a specific item in the COGS report — first check the receipt history: is the purchase price entered correctly.

Related Pages

• First Goods Receipt — how to correctly process a receipt with a purchase price
• COGS Report and Bar Margin — how to read the accounting results
• Inventory Procedure — how to keep batch data in order
• Warehouse in IZI: Overview — overall logic
• FIFO: Definition — brief term definition