Question

Which inventory costing method assumes that the inventory's cost flow out in the same order the goods are received?

1) FIFO
2) Weighted average
3) LIFO

Answer 1

The inventory costing method that assumes that the inventory's cost flow out in the same order the goods are received is called FIFO (First-In, First-Out).

Step-by-step explanation:

The inventory costing method that assumes that the inventory's cost flow out in the same order the goods are received is called FIFO (First-In, First-Out).

Under the FIFO method, the oldest inventory costs are assumed to be the first ones sold or used, while the costs of the most recent inventory purchases are recognized in the ending inventory.

For example, if a company purchases 100 units of a product in January at $5 per unit, and then purchases 200 units in February at $6 per unit, and sells 150 units in March, the cost of goods sold under FIFO would be calculated by assuming that the first 100 units sold were from the January inventory, which was purchased at $5 per unit, and the remaining 50 units sold were from the February inventory purchased at $6 per unit.