 # q4 from p341 of book3 curriculum

question 4c calculate gross profit margin on LIFO? have no idea at all how to do that, though it was easy to calculate on FIFO.

wolwol, I don’t have my books with me, but I assume that you have all relevant inventory information available. So, you need to calculate COGS using LIFO method and, depending on price level movements, the gross profit margin will be lower (prices go up) or higher (prices go down). Just my \$0.02

milos, you are right, COGS(L) is the way to go, but I do not know how to convert the original COGS to COGS(L), the question is too long to put it here. But the confusing part is that the firm’s inventory is not all LIFO or all FIFO, it is 70% LIFO, and 30% FIFO.

I can explain, but you can get everything in this thread: http://www.analystforum.com/phorums/read.php?11,626318,626475

3x, gdiddy. I’m still confused with the calculation of r

Something about it seems strange. I think maybe the formula in the book is wrong. Check out what formula investopedia uses to calculate r: http://www.investopedia.com/study-guide/cfa-exam/level-1/assets/cfa8.asp3 They use beginning LIFO inventory in the denominator, whereas the curriculum uses beginning FIFO inventory. Also, they incorrectly use LIFO reserve (should be LIFO effect).

Is this a question on how to convert COGS (fifo) to COGS (lifo) ? COGS (L) = COGS (F) + ( Beg Inventory (F) * inflation rate) In theory, yes, LIFO COGS is always best to use. In practice, if a Firm uses FIFO, the conversion calculation to estimate a LIFO COGS is often very subjective as the inflation rate estimate is hard to come by. From what I’ve read of the CFA material, an estimate of the inflation rate can be obtained from analyzing a comparable firm who operates under LIFO and therefore must report LIFO reserve under GAAP. Inflation rate = Increase in LIFO Reserve / Beginning Inventory (FIFO)