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CMA Final · Strategic Cost Management · Back Flush Accounting

Tulsi Motors uses backflush costing with triggers at material purchase and at completion of finished goods. Standard cost is ₹600 per unit (₹380 material, ₹220 conversion). Data: purchases ₹7,98,000; actual conversion cost ₹4,50,000; units completed 2,000; units sold 1,850. Conversion costs are charged to a control account and applied at completion. What are the closing finished goods balance and conversion cost under- or over-applied?

Closing finished goods is ₹90,000 and conversion cost is under-applied by ₹10,000. Unsold units are 2,000 minus 1,850 = 150, valued at ₹600 each. Applied conversion is 2,000 x ₹220 = ₹4,40,000 against actual ₹4,50,000, so the shortfall is ₹10,000.

  1. AFG ₹90,000; under-applied ₹10,000Correct
  2. BFG ₹90,000; over-applied ₹10,000
  3. CFG ₹1,11,000; under-applied ₹10,000
  4. DFG ₹90,000; under-applied ₹50,000

Explanation

Closing FG = (2,000 - 1,850) x 600 = 150 x 600 = ₹90,000. Conversion applied at completion = 2,000 x 220 = ₹4,40,000; actual ₹4,50,000, so under-applied ₹10,000. The ₹1,11,000 option applies a wrong unit base, and over-applied reverses the sign.

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