Multinational - Pg 286 - Question 2

I understand using the current rate method is correct. Ukrainian currency is depreciating and therefor using current XR’s will give the lowest COGS and therefor highest Gross profit.

Since thats the only answer with Current rate you could just stop there.


in the answer it says FIFO gives the highest Gross profit as well compared to Weighted average. It says in an inflationary environment FIFO will give a higher gross profit. First inflation in the Ukranian currency would cause it to depreciate compared to the EURO. In the question it also says the EURO will appreciate specifically(Therefor UKR has to depreciate)).

So if ukranian currency is depreciating then FIFO would give the lowest Gross profit but it says the highest.

Where’s my thinking going wrong here?

Ukranian currency is depreciating vs. EUR, but before you apply any FX your simply looking at the inventory in the local ccy. In the problem it is currently an inflationary environment so using FIFO relief methodolgy COGS will be lower compared to weighted average which will be impacted by inventory purchased at higher prices.

I got it afterwards but thanks. I can see a lot of people missing the fine print here cause in the question it explicitly states exchange rate.

But to answer the question you got to go back into the paragraph and see there is inflation.

Thanks again