Cost Flow Assumptions

Companies may allocate the cost of goods available for sale to cost of goods sold and ending inventory using an assumed cost flow. FIFO (first-in, first-out) method assumes that the earliest goods purchased are the first to be sold. LIFO (last-in, first-out) method assumes that the latest goods purchased are the first to be sold. Average-cost method allocates the cost of goods available for sale on the basis of a weighted-average unit cost incurred.