Question

cost flow assumption: If you owned a grocery store, what cost flow assumption would you use. Explain why you would use this assumption.

Answer 1

In case of a grocery store, the shelf life (the length of time that a commodity might be stored without becoming unfit for use) of the vegetables is very less. Therefore the goods which are purchased first are sold first. Here there is a need of cost flow assumption in which the goods are sold from oldest to newest in that order. The assumption that resembles closest to this kind of physical flow of goods is FIFO method (First-in-First-out) method. In this method it is assumed that the goods which were purchased earlier are sold earlier.