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CMA Final · Strategic Cost Management · Back Flush Accounting

Sagar Components Ltd uses back flush accounting with a single trigger point at completion of finished goods. Standard cost per unit is Rs 200 (materials Rs 120, conversion Rs 80). During the month, materials purchased were Rs 6,60,000, actual conversion costs incurred were Rs 4,30,000, and 5,000 units were completed and 4,600 units were sold. What is the amount debited to Finished Goods Inventory at completion?

Finished goods are debited at standard cost of units completed under a completion trigger. With 5,000 units at Rs 200 each, the debit is Rs 10,00,000. Units sold and actual costs incurred do not determine this entry.

  1. ARs 9,20,000
  2. BRs 10,00,000Correct
  3. CRs 10,90,000
  4. DRs 6,60,000

Explanation

With the trigger at completion, finished goods are debited at standard cost of units completed: 5,000 x Rs 200 = Rs 10,00,000. Rs 9,20,000 wrongly uses units sold (4,600 x 200). Rs 10,90,000 adds purchases and conversion costs actually incurred, which is not standard-based flushing.

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