Home
Back
Gross Profit Formula (LIFO):
| From: | To: |
Gross Profit using LIFO (Last-In, First-Out) is a financial metric that calculates the profit earned from sales after deducting the cost of goods sold using the LIFO inventory valuation method. This method assumes that the most recently acquired inventory is sold first.
The calculator uses the Gross Profit formula with LIFO:
Where:
Explanation: The LIFO method assumes that the most recently purchased or produced items are sold first, which can result in different cost calculations compared to FIFO or average cost methods, especially during periods of inflation.
Details: Gross profit is a key indicator of a company's financial health and operational efficiency. Using LIFO can provide tax advantages during inflationary periods by matching current costs with current revenues.
Tips: Enter sales and COGS_LIFO amounts in USD. Both values must be non-negative numbers. The calculator will compute the gross profit by subtracting COGS_LIFO from sales.
Q1: What is the difference between LIFO and FIFO?
A: LIFO assumes last items purchased are sold first, while FIFO assumes first items purchased are sold first. This affects cost calculations and tax liabilities differently.
Q2: When is LIFO method most beneficial?
A: LIFO is most beneficial during periods of inflation as it results in higher COGS and lower taxable income, providing tax advantages.
Q3: Are there any limitations to using LIFO?
A: LIFO is not permitted under IFRS accounting standards and can result in outdated inventory values on the balance sheet.
Q4: How does LIFO affect gross profit margins?
A: During inflation, LIFO typically results in lower gross profit margins compared to FIFO, as it matches current higher costs with current revenues.
Q5: What industries commonly use LIFO?
A: Industries with rapidly rising costs and large inventories, such as automotive, petroleum, and retail, often use LIFO for tax benefits.