Cost Flow Assumptions
Response to the following problem:
AICPA Adapted A company should determine cost for inventory purposes by the inventory cost flow method most clearly reflecting its periodic income.
Required
1. Explain the fundamental cost flow assumptions of the average cost, FIFO, and LIFO inventory cost flow methods.
2. Discuss the reasons a company uses LIFO in an inflationary economy.
3. Where there is evidence that the utility of goods, in their disposal in the ordinary course of business, will be less than cost, explain the proper accounting treatment and under what concept that treatment is justified.