According to the rules of FIFO, if the bakery sells 200 loaves on Wednesday, the COGS (on the income statement) is $1 per loaf because that was the cost of each of the first loaves in inventory.

The cost of inventory can have a significant impact ... you can enjoy substantial tax savings. While LIFO is an acronym for last-in, first-out, FIFO stands for first-in, first-out.