May I know why the year 1 effects of the inventory on balance sheet is overstate?

It sounds that since the price is higher, then the ending inventory should be less than the correct.

What's more, I am also confused for the other parts.

Situation Klaus Corporation had $580,000 in inventory, which was based on a physical count at December 31, year 1. The inventory was priced at cost. In February year 2, it was determined that the inventory cost was overstated by $50,000. Indicate the effects of the inventory overstatement in the year 1 and year 2 financial statements by completing the following table. Mark each item overstate, understate, or OK. Year 1 Effects Year 2 Effects E OK Inventory on balance sheet Overstate Cost of goods sold Understate Overstate E Understate Net income Overstate Retained earnings Overstate OK