The inventory cost flow assumption that results in a random mixture of goods being included in the balance of inventory and cost of goods sold is weighted average.
Companies utilize the average cost flow assumption to calculate the cost of goods sold (COGS), ending inventory, and inventory expenses. Over the course of the accounting period, all items sold from inventory are averaged, and the items are then given the average cost.
The phrase "weighted average cost flow assumption" is also used to refer to the average cost flow assumption.
An organization's inventory is made up of all the completed products or raw materials utilized in production. The cost of goods sold (COGS) is a cost flow assumption indicator used to gauge profitability and assess how well a business manages its labor and resources during the production process. Once sold, these things are subsequently expensed on the income statement as COGS.
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