Final answer:
The weighted average cost flow assumption means that the cost of inventory items is based on the average cost of all items available, rather than in the order they were purchased. It is a method that smooths out price fluctuations in industries where items are similar or intermingled. The correct option is C.
Step-by-step explanation:
The weighted average cost flow assumption can be summarized as assuming that costs flow at an average of the cost available. This method of inventory valuation and cost flow assumption calculates the average cost of all similar items in inventory and applies that average cost to the cost of units sold as well as to the remaining inventory. Under the weighted average cost method, it is assumed that all units are identical and interchangeable, and it does not necessarily assume that costs flow in the order in which they were incurred (First In, First Out) or in the reverse order (Last In, First Out).
Weighted average cost is particularly useful in industries where items in inventory are so intermingled or similar that assigning a specific cost to an individual unit is impractical. This method smooths out price fluctuations over time, which is helpful when prices are volatile. It calculates a new weighted average cost per unit after each inventory purchase by taking the cost of goods available for sale and dividing it by the total number of units available for sale. This cost is then applied to the units sold until another purchase is made, and a new weighted average is calculated.