inventory cost flow assumptions
Average Cost Flow Assumption. A calculation used by companies to monitor inventory goods. The average cost flow assumption is one of a variety of cost flow assumption methods used to determine the cost of goods sold (COGS) and ending inventory. Companies use one or more methods to make certain assumptions regarding which goods have been sold and which remain in inventory.
Different cost of goods sold and inventory values us ually result from different cost flow assumptions. During periods of rising prices, FIFO produces lower cost of goods sold, higher ending inventory, and. higher gross profit (and income) than LIFO because FIFO includes the oldest and lowest costs in cost.