Final answer:
Different cost flow assumptions lead to variations in the cost of goods sold and ending inventory values, which are critical for financial reporting and tax calculations.
Step-by-step explanation:
Under different cost flow assumptions, we generally get different cost of goods sold (COGS) and ending inventory values. These cost flow assumptions can markedly affect a company's financial statements and tax liabilities. Depending on whether a firm uses First-In, First-Out (FIFO), Last-In, First-Out (LIFO), or other methods such as the weighted average cost, the cost of goods sold and ending inventory can vary. For example, in a period of rising prices, FIFO will yield a lower COGS and higher inventory value, whereas LIFO will result in a higher COGS and a lower inventory value. These differences underscore the importance of understanding the nature of cost structures both in the short run and the long run, as they can influence business strategy and financial performance.