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CMA Final · Strategic Cost Management · Back Flush Accounting

Sagar Pumps Ltd uses back flush accounting with a RIP account for materials and a Finished Goods account. Standard cost per unit is material Rs 330 and conversion Rs 170. In the month, materials purchased were Rs 9,00,000, 2,500 units were completed (conversion applied at standard) and 2,200 units were sold. What is the total closing inventory (RIP plus Finished Goods)?

RIP holds Rs 75,000 of unflushed material (Rs 9,00,000 less Rs 8,25,000), and 300 unsold finished units at Rs 500 give Rs 1,50,000. Total closing inventory is Rs 2,25,000. This matches total costs of Rs 13,25,000 less COGS of Rs 11,00,000.

  1. ARs 2,25,000Correct
  2. BRs 1,74,000
  3. CRs 1,50,000
  4. DRs 75,000

Explanation

Material flushed on completion = 2,500 x 330 = Rs 8,25,000, so RIP balance = 9,00,000 - 8,25,000 = Rs 75,000. Finished Goods = (2,500 - 2,200) x 500 = Rs 1,50,000. Total = Rs 2,25,000. Check: (9,00,000 + 4,25,000) - COGS 11,00,000 = Rs 2,25,000. Rs 1,74,000 counts only material and omits conversion in unsold units.

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