A cost flow assumption need not match the physical flow of inventory.

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A cost flow assumption is a method used to determine how costs are assigned to inventory items when they are purchased or produced and then sold. It is based on certain assumptions about the flow of costs through the inventory system. The physical flow of inventory may not always match the cost flow assumption due to factors such as inventory shrinkage, obsolescence, or transfer of inventory between locations. Therefore, it is possible for a cost flow assumption to not match the physical flow of inventory.

A Cost Flow Assumption Need Not Match the Physical Flow