Question

Which of the following is not a common cost flow assumption used in costing inventory?

a.Average cost
b.Middle-in, first-out
c.Last-in, first-out
d.First-in, first-out

Answer 1

The correct answer is middle-in, first-out. First-in, first-out (FIFO), last-in, first-out (LIFO), and average cost are common cost flow assumptions used in costing inventory.

Step-by-step explanation:

The correct answer is b.Middle-in, first-out.

First-in, first-out (FIFO) assumes that the first items purchased are the first ones sold. This means that the cost of the oldest inventory is recorded as the cost of goods sold (COGS), while the cost of the most recently purchased inventory is recorded as ending inventory on the balance sheet.

Last-in, first-out (LIFO) assumes that the last items purchased are the first ones sold. This means that the cost of the most recently purchased inventory is recorded as the cost of goods sold (COGS), while the cost of the oldest inventory is recorded as ending inventory on the balance sheet.

Average cost assumes that the cost of goods sold (COGS) and ending inventory are based on the average cost of all units available for sale. It is calculated by dividing the total cost of goods available for sale by the total number of units available for sale.