CMA Final · Strategic Cost Management · Back Flush Accounting
Bharat Gears Ltd applies back flush accounting with one trigger at completion. Standard cost per unit is material Rs 600 and conversion Rs 400. During the period 2,000 units were completed, 1,800 were sold, and actual conversion costs were Rs 8,50,000. If the conversion cost variance is written off entirely to Cost of Goods Sold, what is the final Cost of Goods Sold?
Standard COGS for 1,800 units at Rs 1,000 is Rs 18,00,000. Conversion applied was Rs 8,00,000 against actual Rs 8,50,000, so Rs 50,000 is under-applied. Writing this off to COGS raises it to Rs 18,50,000.
- ARs 18,50,000Correct
- BRs 17,50,000
- CRs 18,00,000
- DRs 20,50,000
Explanation
Conversion applied = 2,000 x 400 = Rs 8,00,000, so actual Rs 8,50,000 is under-applied by Rs 50,000. Standard COGS = 1,800 x 1,000 = Rs 18,00,000. Under-applied overhead increases cost, so COGS = 18,00,000 + 50,000 = Rs 18,50,000. Rs 17,50,000 uses the wrong sign.
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