WAC or FIFO? Which costing method fits your business
Choosing your costing method is one of the most important steps in your system, because Zemam gives you two methods: WAC, which calculates the average cost based on your purchase costs, and FIFO, which calculates cost based on the oldest price in stock.
The idea in a minute
The quantity is the same — but the price it's costed at differs by method: WAC takes the average of all purchases, FIFO draws from oldest batch to newest. Both are accepted under IAS 2 — the choice depends on your business.
One example
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You bought the same goods at two different prices
You bought 10 pieces at 100 EGP, then two weeks later 10 more pieces at 120 EGP (prices are rising). Now you have 20 pieces worth 2,200 EGP in total, and it's time to sell — how do you calculate the cost?
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Weighted average (WAC): one price for the product
The average cost updates automatically after every purchase, and when you sell, Zemam calculates the cost for you based on the last average that was calculated.
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FIFO: oldest out first
Each batch has its own price. Zemam calculates the cost of sale from the oldest batch, and once that batch runs out, it moves to the next batch at its own cost.
You bought: 10 pcs × 100, then 10 pcs × 120 — and sold 5 pcs
Weighted average (WAC)
(10×100 + 10×120) ÷ 20 = 110
Cost of sale:
5 × 110 = 550
First-in, first-out (FIFO)
The sale draws from the oldest batch (at 100)
Cost of sale:
5 × 100 = 500
A 50-pound difference in cost = a 50-pound difference in reported profit — on one small sale. Across thousands of sales, the method genuinely matters.
Same purchases — a different cost of sale per method - 4
So what should you base your choice on?
It depends on the nature of your business. If it doesn't matter to you which batch — new or old — you're selling from, choose WAC: it calculates the average cost for you automatically. But if it does matter — for example, different models with a distinct price per batch — choose FIFO: it keeps each batch's own cost, and updates the cost as each batch is sold.
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In Zemam: per item — not one global switch
On the item screen you set the costing method per item. Your generic materials can run WAC while your expiry-tracked items run FIFO — same system, same warehouse. With FIFO, Zemam maintains the cost layers automatically: every receipt at its price, every sale drawing from the oldest.
Item — costing
Costing method
Weighted average (WAC)First-in, first-out (FIFO)How stock cost is computed at sale (WAC = average of all purchases, FIFO = oldest first)
The item screen — you pick the costing method per item - 6
And see the effect on inventory valuation
The inventory value shown in the report is the same value in your books, because every accounting movement is recorded automatically.
In short
Both methods are accounting-correct (IAS 2) — you just need to know which one you're using.
Every item has its own method: similar goods suit WAC, distinct batches suit FIFO — and Zemam lets you choose the right one for each item.
Know which costing method suits you, because your profit changes depending on it.
Not sure which method fits your items?
Talk to us — we'll look at the nature of your goods and set the right method for each item group from day one.