The FIFO inventory costing method assumes that the inventory's cost flow out in the same order the goods are received.
Cost flow refers to the way costs move through your organization. Cost flows are typically relevant to manufacturing companies where accountants need to quantify the cost of raw materials, work-in-progress, finished goods inventories, and goods sold.
The average cost flow assumption is a calculation that businesses use to allocate costs to inventory, cost of goods sold (COGS), and end inventory. The average of all inventory items sold during the accounting period is taken and this average cost is assigned to the item.
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