1. First in First out (abbreviated as FIFO) method :

Under this method, the goods which are
produced first or acquired first are sold first or used first for production. The sequence of
issue of goods for sale or production follows the sequence or order in which they have
been received. The goods which remain as unsold stock are valued at current cost price.
According to Littleton and Paton “the cost factors move through the business in procession
fashion” under FIFO method.


Advantages

(1) Stock represents goods purchased recently. So the valuation is made at current purchase
price,
(2) Accounting involves recording of transactions in a chronological manner. FIFO conforms
to that order.
(3) It is a simple method approved by Tax and other authorities.
(4) As issues are priced in the same order in which materials have been acquired, the issues
are made at actual cost.
(5) Where the nature of materials is slow moving or bulk items are not issued, this method is
very useful.

Disadvantages

(1) Where the price level goes up steadily or it fluctuates, this method is not useful.
(2) The prices of issues do not reflect the current market prices.
(3) Matching of current costs with current revenues does not become possible.