If the unit price of inventory is increasing during a period, a company using the LIFO inventory method will show less gross profit for the period, than if it had used the FIFO inventory method.

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LIFO, or Last In First Out, assumes that the most recent inventory purchased is sold first, while FIFO, or First In First Out, assumes that the first inventory purchased is sold first. If the unit price of inventory is increasing, the cost of goods sold will be higher under LIFO, reducing the gross profit. FIFO, on the other hand, will have a lower cost of goods sold and a higher gross profit.

If the Unit Price of Inventory Is Increasing During a Period