Let’s assume three months, the goods were purchased in January of rupees 5 and February of rupees 10, in March it was all sold.
Suppose we are following FIFO and there is an inflationary environment so we first sold the stock of rupees 5, and then of rupees 10, and so we can conclude that profit and value of inventory both are increased.
And on a weighted average, the price of inventory will be 7.5, so when we sold the stock, the profit and value of inventory both are lower.
