In assigning a cost to ending inventory,the cost flow does not have to follow the physical flow.

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The cost flow assumption used to assign a cost to ending inventory can differ from the physical flow of the goods. This is because companies may use different cost flow assumptions, such as first-in, first-out (FIFO), last-in, first-out (LIFO), or average cost, to determine the cost of inventory. The assumption used will affect the ending inventory value on the balance sheet and the cost of goods sold on the income statement.

In Assigning a Cost to Ending Inventory,the Cost Flow Does