If sales are more then production this means you are using the old inventory which is at low cost .
In fifo inventory method you won’t observe an unusual increase in gp margin because in fifo we sell the inventory which came in first so the inventory is of low cost. And if sales is more then production this will not effect the gp margin because even if production is low we are still going to sell the inventory which is produced last year first .
Under lifo method the inventory which is sold is of high cost and freshly prepared
If sales are more then production means that we are selling inventory which is produced this year plus the inventory which was produced last year (obviously that will be at lower cost ) .
So you can observe some increase in gp margin when using lifo method
If sales are more then production this means you are using the old inventory which is at low cost .
In fifo inventory method you won’t observe an unusual increase in gp margin because in fifo we sell the inventory which came in first so the inventory is of low cost. And if sales is more then production this will not effect the gp margin because even if production is low we are still going to sell the inventory which is produced last year first .
Under lifo method the inventory which is sold is of high cost and freshly prepared
If sales are more then production means that we are selling inventory which is produced this year plus the inventory which was produced last year (obviously that will be at lower cost ) .
So you can observe some increase in gp margin when using lifo method
To gp increase kaise hua lifo mein cogs to high hoga