7/23/2019 Flow of Cost

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DEFINITION OF 'FLOW OF COSTS'

Refers to the manner in which costs move through a firm. Typically, the flow of costs is relevant to a

manufacturing environment where accountants must quantify what costs are in raw materials, work in

 process, finished goods inventory and cost of goods sold. Flow of costs does not only apply to inventory, but

also to factors in other processes to which a cost is attached such as labor and overhead.

INVESTOPEDIA EXPLAINS 'Flow of Costs'

There are several methods for accounting for the flow of costs. These include LIF !last in, first out", FIF

!first in, first out", specific identification and weighted#average cost. $.%. &''( financial reporting

standards require that companies that use the LIF method report the difference between that method and

FIF in a line item called LIF reserve. This allows analysts to readily compare firms using different cost

flow assumptions.