The FIFO inventory cost formula agrees closely to the actual physical movement of goods in most businesses.

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The FIFO (First-In, First-Out) inventory cost formula assumes that the first items placed in inventory are the first sold, which often closely matches the actual physical flow of goods in many businesses, especially those dealing with perishable items or products that cannot be stored for long periods.

The FIFO Inventory Cost Formula Agrees Closely to the Actual