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Average Cost Flow Assumption. A calculation used by companies to monitor inventory goods. The average cost flow assumption is one of a variety of cost flow assumption methods used to determine the cost of goods sold (COGS) and ending inventory. Companies use one or more methods to make certain assumptions regarding which goods have been sold and which remain in inventory.
Test Bank for Managerial Accounting, Second Edition Standard cost + price variance + quantity variance = Budgeted cost. The overhead controllable variance relates primarily to fixed overhead costs. The overhead volume variance relates only to fixed overhead costs.