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CMA Final · Strategic Cost Management · Back Flush Accounting

Narmada Gears Ltd uses a two-trigger back flush system: material purchases are debited to Raw-in-Process, and completed units are back-flushed at standard cost. Standard cost per unit is Rs 70 (materials Rs 40, conversion Rs 30). Materials purchased were Rs 7,00,000; units completed 15,000; units sold 13,500; actual conversion cost Rs 4,80,000. What is the total year-end carrying value of Raw-in-Process and finished goods, before any conversion cost variance adjustment?

The combined carrying value is Rs 2,05,000. Raw-in-Process is Rs 7,00,000 purchases less Rs 6,00,000 materials back-flushed on 15,000 completed units, giving Rs 1,00,000. Finished goods are 1,500 unsold units at Rs 70, or Rs 1,05,000. The under-absorbed conversion cost is not added.

  1. ARs 1,05,000
  2. BRs 2,05,000Correct
  3. CRs 2,35,000
  4. DRs 1,00,000

Explanation

Materials back-flushed on completion are 15,000 x 40 = Rs 6,00,000, leaving Raw-in-Process of 7,00,000 - 6,00,000 = Rs 1,00,000. Finished goods are 1,500 units x Rs 70 = Rs 1,05,000. Total is Rs 2,05,000. Rs 2,35,000 wrongly adds the Rs 30,000 under-absorbed conversion cost (4,80,000 - 4,50,000), and Rs 1,05,000 omits Raw-in-Process.

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