LIFO or FIFO

CFA Level I FRA
#1

I find the question in the Scheweser 2013 CFA level 1 Practice exam volume 2

Exam 1 Morning Session

Question 57) Skinner Inc. manufacture and sell the kitchen utensil. Over time the cost of Skinner’s inventory has been rising. A recent demand for Skinner has resulted in LIFO liquidation. What effect will the LIFO liquidation have on the Skinnner’s gross profit margin percentage?

a) Increase

b) Decrease

c) No effect

My answer is B, because the cost of inventory is increasing so last inventory will have higher cost => COGS is higher => the gross profit margin percentage will decrease. But the answer of Scheweser is Increase ???

Any Ideas please ??!!!

#2

LIFO liquidation over a period when prices have been rising = you need to sell older invertory (that you bought at a lower price) = lower COGS = all else constant increases profit margin.