Cost Flow Assumptions - Assignment Example

Cost flow assumption means that order in which costs are removed from inventory. This is not like physically moving inventory but taking the cost of inventory to the cost of goods sold. This can be done by using any of the three cost flow methods.First In, First Out (FIFO)Last In, First Out (LIFO)AverageThese methods are important since they value inventory. With the valuation of inventory, the costs of inventory can be identified. And that identified cost can be used in the income statement and balance sheet as well.

The FIFO method assumes that merchandise is sold in the order of its receipt (Siegel, 2000).FIFO measures the unit costs, and there are two units of costs for the period.First, beginning work-in-progress units are completed;And units started and finished in the same period.FIFO method assumes that the beginning work-in-progress is assumed to be completed and transferred first