Question

In this discussion question you will describe inventory cost flow assumptions.

Answer 1

Inventory cost flow assumptions are

FIFO:

(first-in, first-out) Assumes that the earliest goods purchased are the first to be sold. Parallels actual physical flow of merchandise because it generally is good business practice to sell the oldest units first.

LIFO:

(last-in, first-out) it is assumed that the first goods sold were those that were most recently purchased, ending inventory is based on the prices of the oldest units purchased.

Average cost:

allocates the cost of goods available for sale on the basis of the weighted-average unit cost incurred