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CMA Final · Strategic Cost Management · Back Flush Accounting

Kaveri Components uses backflush accounting with trigger points at purchase of materials and completion of units. Standard cost per unit is Rs 150 (materials Rs 90, conversion Rs 60). Materials purchased Rs 5,00,000; actual conversion cost Rs 3,40,000; units completed 5,500; units sold 5,000. What is the cost of goods sold at standard, and what is the conversion cost under-applied/over-applied?

Cost of goods sold is 5,000 units at Rs 150, which is Rs 7,50,000. Applied conversion is 5,500 x Rs 60 = Rs 3,30,000 against actual Rs 3,40,000, so conversion is under-applied by Rs 10,000.

  1. ACOGS Rs 7,50,000; conversion under-applied Rs 10,000Correct
  2. BCOGS Rs 8,25,000; conversion under-applied Rs 10,000
  3. CCOGS Rs 7,50,000; conversion over-applied Rs 10,000
  4. DCOGS Rs 7,50,000; conversion under-applied Rs 40,000

Explanation

COGS = 5,000 x Rs 150 = Rs 7,50,000. Conversion applied on completion = 5,500 x Rs 60 = Rs 3,30,000. Actual Rs 3,40,000 exceeds applied by Rs 10,000, so under-applied. Option B uses units completed for COGS, which is wrong.

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