The FIFO formula assumes that the items of inventory which were purchased first are
sold first, and consequently the items remaining in inventory at the end of the period
are those most recently purchased or produced. Under the weighted average cost
formula, the cost of each item is determined from the weighted average of the cost of
similar items at the beginning of a period and the cost of similar items purchased or
produced during the period. The average may be calculated on a periodic basis, or as
each additional shipment is received, depending upon the circumstances of the
enterprise.