<P> Determining overhead costs often involves making assumptions about what costs should be associated with production activities and what costs should be associated with other activities . Traditional cost accounting methods attempt to make these assumptions based on past experience and management judgment as to factual relationships . Activity based costing attempts to allocate costs based on those factors that drive the business to incur the costs . </P> <P> Overhead costs are often allocated to sets of produced goods based on the ratio of labor hours or costs or the ratio of materials used for producing the set of goods . Overhead costs may be referred to as factory overhead or factory burden for those costs incurred at the plant level or overall burden for those costs incurred at the organization level . Where labor hours are used, a burden rate or overhead cost per hour of labor may be added along with labor costs . Other methods may be used to associate overhead costs with particular goods produced . Overhead rates may be standard rates, in which case there may be variances, or may be adjusted for each set of goods produced . </P> <P> In some cases, the cost of goods sold may be identified with the item sold . Ordinarily, however, the identity of goods is lost between the time of purchase or manufacture and the time of sale . Determining which goods have been sold, and the cost of those goods, requires either identifying the goods or using a convention to assume which goods were sold . This may be referred to as a cost flow assumption or inventory identification assumption or convention . The following methods are available in many jurisdictions for associating costs with goods sold and goods still on hand: </P> <Ul> <Li> Specific identification . Under this method, particular items are identified, and costs are tracked with respect to each item . This may require considerable recordkeeping . This method cannot be used where the goods or items are indistinguishable or fungible . </Li> <Li> Average cost . The average cost method relies on average unit cost to calculate cost of units sold and ending inventory . Several variations on the calculation may be used, including weighted average and moving average . </Li> <Li> First - In First - Out (FIFO) assumes that the items purchased or produced first are sold first . Costs of inventory per unit or item are determined at the time made or acquired . The oldest cost (i.e., the first in) is then matched against revenue and assigned to cost of goods sold . </Li> <Li> Last - In First - Out (LIFO) is the reverse of FIFO . Some systems permit determining the costs of goods at the time acquired or made, but assigning costs to goods sold under the assumption that the goods made or acquired last are sold first . Costs of specific goods acquired or made are added to a pool of costs for the type of goods . Under this system, the business may maintain costs under FIFO but track an offset in the form of a LIFO reserve . Such reserve (an asset or contra - asset) represents the difference in cost of inventory under the FIFO and LIFO assumptions . Such amount may be different for financial reporting and tax purposes in the United States . </Li> <Li> Dollar Value LIFO . Under this variation of LIFO, increases or decreases in the LIFO reserve are determined based on dollar values rather than quantities . </Li> <Li> Retail inventory method . Resellers of goods may use this method to simplify recordkeeping . The calculated cost of goods on hand at the end of a period is the ratio of cost of goods acquired to the retail value of the goods times the retail value of goods on hand . Cost of goods acquired includes beginning inventory as previously valued plus purchases . Cost of goods sold is then beginning inventory plus purchases less the calculated cost of goods on hand at the end of the period . </Li> </Ul>

The flow of manufacturing costs consist of all the following except