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CMA Final · Strategic Cost Management · Back Flush Accounting

Sahyadri Components Ltd uses back flush accounting with two triggers: purchase of materials (debited to Raw-in-Process) and completion of finished goods. Standard cost per unit is Rs 95 (materials Rs 60, conversion Rs 35). During the month 10,000 units were completed and 9,000 units sold. Actual conversion costs were Rs 4,00,000. Before adjusting any conversion cost variance, what is the cost of goods sold?

Cost of goods sold before variance adjustment is Rs 8,55,000. It is the standard cost of Rs 95 per unit multiplied by the 9,000 units sold. The Rs 9,50,000 figure represents units completed, and the Rs 50,000 under-absorbed conversion cost is adjusted separately afterwards.

  1. ARs 9,50,000
  2. BRs 8,55,000Correct
  3. CRs 9,05,000
  4. DRs 7,60,000

Explanation

Cost of goods sold is the standard cost of units sold: 9,000 x Rs 95 = Rs 8,55,000. The Rs 9,50,000 option is the cost of units completed, not sold. Conversion costs under-absorbed are 4,00,000 - 3,50,000 = Rs 50,000, which is adjusted later; adding it gives Rs 9,05,000, which is not the pre-adjustment figure.

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