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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.
The total inventory cost for a year for a business is simply the sum of the carrying cost and the ordering cost. The total inventory cost formula is below, and the total inventory cost calculator can be found on this website. C=Carrying cost per unit of inventory. Q=Inventory order size (quantity).We can see by the equation above that the carrying cost of inventory can be reduced by reducing the size of Q. This is usually achieved by reducing the amount of capital invested in inventory, as well as the space and expense required to store it.e can determine the ordering cost by calculating the number of orders in a year, and multiply this by the cost of each order. To determine the number of orders we simply divide the total demand (D) of units per year by Q, the size of each inventory order. D=Total demand (units). Q=Inventory order size (quantity).