Foreign Currency Translation EOC R25 - Q2 into, following, believes, currency

RobertA

Taken from CFAI EOC Q2 - R25.
Scenario indicates that a subsidiary’s currency will depreciate vs. the parent currency. Analyst believes local currency/subsidiary environment to be inflationary. Which of the following will produce the highest gross margins for the parent co if inventory is accounted for using:
A. FIFO and temporal method
B. weighted average cost and temporal method
C. FIFO and the current rate method
This just isn’t sinking into my brain. The correct answer is C. Inflationary environment means FIFO produces better profit margins than weighted average cost (I guess we are to assume that you cannot pass costs on, only that you eat the inflationary COGS increase???). What functionally is the explanation for how the translation occurs such that current rate is better in a depreciating subsidiary currency scenario. Is it that the COGS are translated based on the most recent exchange rate such that the remaining inventory booked on the balance sheet is therefore priced down in value? Any thoughts beyond the answer at the back of the book.
thx.

agulani

Great explanation stingreye, you are correct. Just think COGS has to be lower under current method b/c the currency (hryvnia) has depreciated and COGS under current rt method is at the average rate, like all income statement items under current rt method. Lower COGS equals higher gross profit.