Final answer:
The method of approximating the flow of inventory costs in a business that is used to determine the amount of cost of goods sold and ending merchandise inventory is called the FIFO (First-In, First-Out) method.
Step-by-step explanation:
The method of approximating the flow of inventory costs in a business that is used to determine the amount of cost of goods sold and ending merchandise inventory is called the FIFO (First-In, First-Out) method.
The FIFO method assumes that the inventory items that are purchased or produced first are the ones that are sold first. This means that the cost of goods sold will be calculated using the oldest inventory costs, while the ending merchandise inventory will include the most recent inventory costs.
For example, if a company has products A, B, and C that were purchased at different costs over time, and it sells 10 units of each product, the FIFO method would assume that the 10 units of product A that were purchased first would be sold first, followed by the 10 units of product B, and then the 10 units of product C.