Cost Flow

Posted in Operations and Supply Chain Terms, Total Reads: 3346

Definition: Cost Flow

Cost Flow refers to the method in which expenses or costs move from beginning to end a firm. Typically, the flow of expenses is pertinent to a manufacturing environment everywhere accountants are obliged to quantify what expenses are in work in process, finished goods inventory and raw materials as well as cost of goods sold. Flow of expenses does not simply apply to inventory, but also includes other factors in additional processes to which a cost is closely attached such as employment and overhead.

A. The FIFO Method

The FIFO technique considers the oldest goods sold first. The finish inventory consists of the newer purchases. Throughout the time of rising prices, FIFO will consequence in a superior ending inventory value and a inferior cost of goods sold (i.e., in comparison to LIFO).

B. The LIFO Method

The LIFO technique considers the most recent purchases because being sold first. The finish inventory consists of the grown-up purchases. During times of increasing prices, LIFO will consequence in a lower ending inventory and a superior cost of goods sold (i.e., in comparison to FIFO)

Hence, this concludes the definition of Cost Flow along with its overview.


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