What is FIFO (First In, First Out)?

Imagine you bake chocolate layer cakes. On Monday, you buy 2 kg of butter at $6.80/kg ($13.60 total). On Wednesday, butter prices drop and you buy another 2 kg at $5.20/kg ($10.40 total). You now have 4 kg of butter in your walk-in. With FIFO, you use the Monday butter first — all 2 kg — before touching the Wednesday butter. Why? Because butter lasts about 3 weeks in a walk-in, and the Monday batch will expire first. If you grab the cheaper Wednesday butter instead, the Monday butter sits unused until it goes rancid. You've just thrown away $13.60 of profit. Without FIFO, you're also flying blind on actual ingredient costs. Let's say you bake 20 chocolate layer cakes this week, using 4 kg of butter total. If you mixed batches — using some Monday butter and some Wednesday butter — your cost per cake looks like ($13.60 + $10.40) ÷ 20 = $1.20 per cake in butter. But that's meaningless for next week's pricing. Next week, if you only have Wednesday butter left, your actual cost per cake drops to $5.20 ÷ 20 = $0.26 per cake. Your recipe card should reflect what you're actually using, not an average. FIFO forces you to track this accurately. The other reason bakers care about FIFO is food safety. Health inspectors expect to see older stock used first. If you're audited and they find that you're using newer ingredients while older ones expire in the back, that's a red flag — even if nothing went bad. It suggests you're not managing inventory carefully. FIFO is the easiest way to prove you are. Small bakeries often skip FIFO because they think it's too complicated. They just grab whatever's closest. But if you're baking 40+ cakes a month or managing 15+ recipes, you're losing money every time an ingredient expires. One batch of expired cream cheese ($18) or a jar of vanilla extract that went bad ($12) erases the time savings you thought you got by skipping the system.