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CMA Final · Strategic Cost Management · Back Flush Accounting

Rohini Engineering Ltd uses back flush accounting with triggers at purchase of materials and at sale, and adjusts period-end inventory for unsold completed units. Standard cost per unit is material Rs 500 and conversion Rs 300. During the period, materials purchased were Rs 26,00,000, actual conversion costs were Rs 14,50,000, 5,000 units were completed and 4,200 units were sold. Conversion cost is applied on units completed, and the whole variance is taken to Cost of Goods Sold. What is the final Cost of Goods Sold?

Standard COGS is 4,200 units x Rs 800 = Rs 33,60,000. Conversion applied on 5,000 completed units is Rs 15,00,000 against actual Rs 14,50,000, leaving Rs 50,000 over-applied. Writing this off reduces COGS to Rs 33,10,000.

  1. ARs 33,10,000Correct
  2. BRs 34,10,000
  3. CRs 33,60,000
  4. DRs 33,18,000

Explanation

Conversion applied on completed units = 5,000 x 300 = Rs 15,00,000 against actual Rs 14,50,000, so Rs 50,000 is over-applied. Standard COGS = 4,200 x 800 = Rs 33,60,000. Over-applied cost reduces COGS: 33,60,000 - 50,000 = Rs 33,10,000. Rs 34,10,000 adds it instead, and Rs 33,18,000 wrongly prorates the variance to units sold (42,000).

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