LIFO and FIFO for Pesach
Our Passover seder was very inspiring and enjoyable. This year, my wife's Cousin Shira was once again able to join us, as in some prior years. For those of you who have not been reading the postings, Cousin Shira's sociopolitical outlook tends to gravitate towards the leftward end of the spectrum. This year, she didn't seem as gung-ho about Barack Hussein Obama as in times past. I do enjoy Cousin Shira's company, notwithstanding her politics.
I am not an accountant, but, having attained a MBA degree, I do have a very, very basic understanding of some of the accounting profession's concepts and jargon. In such regard, it is noted that a merchant's inventory can be managed and valued in various ways, and the physical management is not always the same as the valuation method. The valuation method used can make a significant difference, especially when differing quantities are purchased at different times for different prices.
Without getting into too much detail, the three main methods of inventory valuation are First In First Out (FIFO), Last In First Out (LIFO), and Weighted Average. Perishable goods are usually physically managed according to the FIFO method (though they may be valued, for accounting purposes, using LIFO or Weighted Average).
Shortly after my marriage 20-something years ago, I found that I do enjoy eating pickled herring (having theretofore eschewed the food). And so, I usually eat it on Shabbat at my Shul (but that is the only time I ever eat it).
My Rabbi, who takes it upon himself to procure most of the provisions for our sit-down Kiddush meal every Shabbat (the main exception being the baked goods, which are picked up Thursday evening or Friday morning by one of our congregation's members whose office is a few blocks from the bakery we use), informed me that he was unable to find any Kosher for Passover pickled herring.
I went to the local supermarket where we usually obtain the herring, and asked the Deli Manager about it.
Turns out that the jars of the Kosher for Passover herring were still in the walk-in refrigerator, because his inventory management for such perishable goods is FIFO. I explained to him that during the eight days of Passover, certain foods, including pickled herring, need special Passover supervision or religious people such as myself will not eat it.
The Deli Manager thought about it, and then told me that he now understands why the sales of pickled herring were down this week. He instructed one of his underlings to put a few cases of the Kosher L'Pesach pickled herring (3 different brands) into the refrigerator case, so that customers holding by the Pesach kashrut laws would be able to buy it. I purchased four jars and took them to shul this evening. The Rabbi was obviously pleased.
But how much business has been lost because of deli managers who use the FIFO inventory management method with their pickled herring and other perishable foods? And how many, out of ignorance, will decide not to carry pickled herring and other such foods next year?
I am not an accountant, but, having attained a MBA degree, I do have a very, very basic understanding of some of the accounting profession's concepts and jargon. In such regard, it is noted that a merchant's inventory can be managed and valued in various ways, and the physical management is not always the same as the valuation method. The valuation method used can make a significant difference, especially when differing quantities are purchased at different times for different prices.
Without getting into too much detail, the three main methods of inventory valuation are First In First Out (FIFO), Last In First Out (LIFO), and Weighted Average. Perishable goods are usually physically managed according to the FIFO method (though they may be valued, for accounting purposes, using LIFO or Weighted Average).
Shortly after my marriage 20-something years ago, I found that I do enjoy eating pickled herring (having theretofore eschewed the food). And so, I usually eat it on Shabbat at my Shul (but that is the only time I ever eat it).
My Rabbi, who takes it upon himself to procure most of the provisions for our sit-down Kiddush meal every Shabbat (the main exception being the baked goods, which are picked up Thursday evening or Friday morning by one of our congregation's members whose office is a few blocks from the bakery we use), informed me that he was unable to find any Kosher for Passover pickled herring.
I went to the local supermarket where we usually obtain the herring, and asked the Deli Manager about it.
Turns out that the jars of the Kosher for Passover herring were still in the walk-in refrigerator, because his inventory management for such perishable goods is FIFO. I explained to him that during the eight days of Passover, certain foods, including pickled herring, need special Passover supervision or religious people such as myself will not eat it.
The Deli Manager thought about it, and then told me that he now understands why the sales of pickled herring were down this week. He instructed one of his underlings to put a few cases of the Kosher L'Pesach pickled herring (3 different brands) into the refrigerator case, so that customers holding by the Pesach kashrut laws would be able to buy it. I purchased four jars and took them to shul this evening. The Rabbi was obviously pleased.
But how much business has been lost because of deli managers who use the FIFO inventory management method with their pickled herring and other perishable foods? And how many, out of ignorance, will decide not to carry pickled herring and other such foods next year?
Labels: FIFO, LIFO, Passover, Pesach, Pickled Herring, Seder
posted by Expatriate Owl @ 2:27 AM
3 Comments:
At 09 May, 2011 05:56,
corti said…
Since one of my majors is accounting, I got a good laugh out of this post. You make a good point that Passover laws mess with the FIFO order and conflict with the most economical way of selling food. If the demand for Passover herring is high enough, I suppose that owners could delay their restocking for the month or two before Passover, so that there are no jars of herring with seniority left (or very few at least) by the time the Passover jars come in. They might risk running a shortage though. Again, great post, never thought of Pesach goods this way.
At 09 May, 2011 15:17,
Expatriate Owl said…
Corti, your cure may be worse than the disease. Can you imagine what that would do to the EOQ algorithms in the store's computer? And can you imagine, in one of these big national grocery chains, the local deli manager being given the third degree by the powers-that-be for deviating from the EOQs?
[For those who are not CPAs or MBAs, "EOQ" stands for "Economic Ordering Quantity."].
At 09 May, 2011 18:31,
corti said…
I guess that's my punishment for taking Managerial Accounting during a summer session 0:-) [my profile picture is a better indicator of my future profession] However your story made it sound like it was a small "Mom & Pop" store, based on their adorable cluelessness. In the case of a national chain that wants to strictly adhere to the EOQ, I wonder if there's a way to switch from FIFO to LIFO temporarily in a self-correcting way. After all, Christmas goods present a similar problem- for example the cereal boxes which have the Christmas or Halloween designs. Management must have a better strategy, it just needs to be brought to attention to apply that strategy to the Passover goods... but this is where the CPA lets the MBA take over ;)
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