FIFO vs Weighted Average Cost: real profitability of a baguette tradition
Two inventory valuation methods, two very different margin results. A concrete side-by-side comparison applied to a traditional baguette recipe.
Why inventory valuation affects your margins
When you buy flour at different prices across deliveries, which price do you use to calculate the cost of your recipes? The answer to that question radically changes your displayed margin.
Two methods exist: FIFO (First In, First Out) and Weighted Average Cost (WAC). Both are legally recognized and accepted by tax authorities, but they produce different results.
FIFO method: principle and calculation
The FIFO method assumes that the oldest ingredients are used first. The cost of your recipe is therefore based on the price of the oldest delivery still in stock.
Example:
- Delivery 1 (March 1): 50 kg of T65 flour at 0.85 EUR/kg
- Delivery 2 (March 15): 50 kg of T65 flour at 0.92 EUR/kg
If you use 60 kg for your baguettes on March 20: 50 kg at 0.85 EUR + 10 kg at 0.92 EUR = 51.70 EUR, or 0.862 EUR/kg.
Good to know
During times of rising prices (the norm since 2022), FIFO shows a lower cost and therefore a higher margin. Warning: this is an accounting illusion if you are not restocking at the same price.
Weighted Average Cost: principle and calculation
WAC recalculates an average price with each new delivery. The cost used in your recipes is this average price, regardless of stock age.
Same example:
- After both deliveries: (50 x 0.85 + 50 x 0.92) / 100 = 0.885 EUR/kg
- 60 kg at 0.885 = 53.10 EUR
Difference from FIFO: 1.40 EUR on a single ingredient. Multiply that across all your recipes and all your ingredients, and the gap can reach several hundred euros per month.
Side-by-side comparison on a traditional baguette
Let's take a traditional baguette (250 g) made from T65 flour, water, salt and yeast:
| FIFO | WAC | |
|---|---|---|
| Ingredient cost | 0.31 EUR | 0.33 EUR |
| Selling price | 1.30 EUR | 1.30 EUR |
| Ingredient margin | 76.2% | 74.6% |
A 1.6 percentage point margin difference. On 300 baguettes/day, that represents roughly 180 EUR/month of "phantom margin" with FIFO during a price increase cycle.
Which method should you use?
Our recommendation for an artisan bakery:
- Use WAC for your pricing decisions. It smooths out fluctuations and gives you the most realistic view of your actual costs.
- Consult your accountant on which method to use in your books. During periods of rising prices, WAC shows a higher ingredient cost, which mechanically reduces your taxable income.
- Recalculate monthly: supplier prices change, and so do your costs.
Good to know
LogiBake updates the price of each ingredient with every invoice you enter. Your recipe margins are recalculated automatically. For even more precise tracking, verify your supplier prices after each delivery.
LogiBake does not replace your expertise.
It gives you the tools to make the most of it.