CPA Exam Simulation Dollar Value LIFO

In this video, I discuss how to answer CPA exam simulation that deals with Dollar Value LIFO. Farhat Lectures can you pass the CPA exam. he CPA Exam consists of four, four-hour sections: Auditing and Attestation (AUD), Business Environment and Concepts (BEC), Financial Accounting and Reporting (FAR) and Regulation (REG). The Uniform CPA Exam protects the public interest by helping to ensure that only qualified individuals become licensed as U.S. Certified Public Check my website: fwww.farhatlectures.com
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[@kidcivic2002]

Thank you. This explains it so well.

[@AccountingLectures]

Thank you. Please connect with me: linktr.ee/farhatlectures

[@Fidasaind]

So a next step. Ending inventory is $17k in 2020 and $27815 in 2022. The initial and incorrect assumption is that must be because the number of units increased by 145% (1-49/20)*100%.
But the reality is this is a combination of an quantity and per unit cost increase.
If 2020 that $17,000 cost was for 1000 units then we know the per unit cost was $17. We know costs went up 63.62% (1-27815/17000)*100%. So is this like managerial accounting when it talked about efficiency and variances. Knowing how many units, we could next look at the effect of inflation vs the effect of inventory on hand and see which is the one having a larger effect on driving up inventory cost?
Or are we later going to look at more like inventory on hand vs sales to analyze if we are ordering too much, about right, or not enough. Like if inventory increases but sales does not, that could point towards keeping inventory higher resulting in lower net income. On the other hand, if inventory is too low which results in empty shelves which results in reduced sales, would it be more efficient to buy more inventory (despite the high inflation increases) to keep sales higher. Is that a future step in intermediate 2? Because I remember that being a concept that I actually liked in managerial once I got my head around it. And during this video session I kept wishing we had inventory units to understand what was driving these increases more: per unit price increases due to inflation or quantity of inventory on hand. One thing we can tell is the cost to retail percentage keeps getting closer to 1.0. That tells me that their profit margin is decreasing over time. Meaning that this high inflation is likely squeezing Adam Corp.
All I know is my gut instinct tells me that when their cost went up by 75% in 2 years, their cost-to-retail% was already high at 85% and was only able to increase to 90% in that same time, that it feels like they are going to be struggling. A competitor could probably drive them out far too easily by dropping their prices low enough that Adam Corp would be forced to sell at over 100% cost-to-retail to match them or a competitor could get a cheaper distributor and do the same thing while maintaining a positive margin but pushing Adam Corp into a negative. If this were a real-world example, I hope that Adam Corp is either selling large quantities to be able to absorb these per unit increases OR they find new distributors fast!

[@t0raneko]

The wording of question 2 is confusing. It says "calculate inventory value" but it is unclear that it is looking for the inventory cost. Is this implied?

[@AccountingLectures]

It is not confusing. You have a misunderstanding about inventory valuation. You report inventory at cost.

[@bradward9538]

I think I missed where the $5,000 came from. Got a moment to elaborate?

[@wesatsea5805]

The $5,000 came from subtracting the 2020 inventory ($20,000) from the 2021 inventory ($25,000). The point of separating it is that the $20,000 was residual from the previous year, so it wouldn't be fair/make sense to report the cost of it as if it was bought with inflation, because it was purchased before the inflation happened. On the other hand, that $5,000 is new. As it was acquired this year, this years inflation cost should apply to it. The problem is that in order to see what is last years leftovers and what is new, you have to deflate them. So you deflate everything, see what is new ($5,000), then reinflate that part as that cost WAS incurred at the new inflated prices.