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CMA Final · Strategic Cost Management · Back Flush Accounting

Sundaram Fabricators uses a backflush system with one trigger point: completion of finished goods. There is no raw material or WIP inventory account. In a month, it bought materials worth ₹6,40,000 and incurred conversion costs of ₹4,20,000. It completed 2,000 units at a standard cost of ₹520 per unit (₹320 material, ₹200 conversion) and sold 1,800 units. What is the cost of goods sold, before any adjustment for under-applied conversion cost?

Cost of goods sold is ₹9,36,000. Under backflushing with the trigger at completion, costs flow to cost of goods sold at standard cost per unit for the units sold, so 1,800 units multiplied by ₹520 gives ₹9,36,000. Units completed are not the base for COGS.

  1. A₹9,36,000Correct
  2. B₹10,40,000
  3. C₹5,76,000
  4. D₹3,60,000

Explanation

COGS at standard = units sold x standard cost = 1,800 x 520 = ₹9,36,000. The finished goods account holds the 200 unsold units at ₹1,04,000. The figure ₹10,40,000 uses units completed (2,000) instead of units sold, which is the wrong base.

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