CMA SEPTEMBER, 2022 EXAMINATION

INTERMEDIATE LEVEL I
SUBJECT: CM121. COST ACCOUNTING

Model Solution
Solution of the Question No. 1
(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x)
(c) (b) (a) (b) (d) (e) (c) (d) (a) (e)

Solution of the Question No. 2

(a) True.
(b) False. Correct answer: Conversion cost is equal to direct labor plus manufacturing
overhead.
(c) False. Correct answer: External failure cost occurs after the sales of products.
(d) True.
(e) False. Correct answer: Gross profit is synonymous to gross margin.
Solution of the Question No. 3
1. (c )
2. (a)
3. (b)
4. (i)
5. (g)
Solution of the Question No. 4
(a) Open-ended.
(b)

A B C
Actual units 1,800 1,600 1,900
Piece rate per unit Tk. 0.40 Tk. 0.40 Tk. 0.40
Normal remuneration Tk. 720 Tk. 640 Tk. 760
Standard units 2,000 2,000 2,000
Percentage of completion 90% 80% 95%
Bonus percentage 10% 0% 15%
Bonus rate per percentage Tk. 10 Tk. 10 Tk. 10
Bonus amount Tk. 100 Tk. 0 Tk. 150
Total remuneration Tk. 820 Tk. 640 Tk. 910

(c)
(i) Repeated distribution method
Particulars Production Departments Service
Departments
A B C X Y
Overhead as per distribution 50,000 30,000 40,000 10,000 8,000
summary
Department X 2,000 4,000 3,000 (10,000) 1,000
Department Y 3,600 1,800 1,800 1,800 (9,000)
Department X 360 720 540 (1,800) 180
Department Y 72 36 36 36 (180)
Department X 7 14 11 (36) 4
Department Y 2 1 1 (4)
Total 56,041 36,571 45,388 0 0
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 (ii) Simultaneous equation method
According to the question,
X = 10,000 + .20Y…………………(i)
Y = 8,000 + .10X………………….(ii)
From (i), we get,
X = 10,000 + .20 × (8,000 + .10X)
 X = 10,000 + 1,600 + .02X
 X - .02X = 10,000 + 1,600
 .98 X = 11,600
 X = 11,600 ÷ .98
 X = 11,837
Putting the value of X = 11,837 in (ii), we get,
Y = 8,000 + .10×11,837
 Y = 8,000 + 1,184
 Y = 9,184

Particulars Production Departments Service

Departments
A B C X Y
Overhead as per distribution 50,000 30,000 40,000 10,000 8,000
summary
Department X 2,367 4,735 3,551 (11,837) 1,184
Department Y 3,673 1,837 1,837 1,837 (9,184)
Total 56,040 36,572 45,388 0 0

Solution of the Question No. 5 (a)

TK
(a) 2,300 kg of material should cost ( xTK 4) 9,200
but did cost 9,800
Material price variance 600 (A)
(a) 4,850 boomerangs should use (x 0.5 kgs) 2,425 kg
but did use 2,300 kg
Material usage variance in kgs 125 kg (F)
x standard cost per kg × TK4

Material usage variance in TK TK 500 (F)

(b) TK
8,500 hours of labour should cost (x TK2) 17,000
but did cost 16,800
Labour rate variance 200 (F)

(c) 4,850 boomerangs should take (x 2 hrs) 9,700 hrs

but did take (active hours) 8,000 hrs
Labour efficiency variance in hours 1,700 hrs (F)
x standard cost per hour × TK 2
Labour efficiency variance in TK TK 3,400 (F)

(d) Idle time variance 500 hours (A) x TK 2 TK 1,000 (A)

(e) TK
8,000 hours incurring variable o/hd expenditure should cost (x TK 0.30) 2,400
but did cost 2,600
Variable overhead expenditure variance 200 (A)

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(f) Variable overhead efficiency variance in hours is the same as the
labour efficiency variance:
1,700 hours (F) x TK 0.30 per hour TK 510 (F)

(g) TK
Budgeted fixed overhead (5,100 units x2 hrs x TK 3.70) 37,740
Actual fixed overhead 42,300
Fixed overhead expenditure variance 4,560 (A)

(h) TK
4,850 boomerangs should take (x 2 hrs) 9,700 hrs
but did take (active hours) 8,000 hrs
Fixed overhead volume efficiency variance in hrs 1,700 hrs (F)
x standard fixed overhead absorption rate per hour x TK3.70
Fixed overhead volume efficiency variance in TK 6,290 (F)

(i) TK
Budgeted hours of work (5,100 x 2 hrs) 10,200 hrs
Actual hours of work 8,000 hrs
Fixed overhead volume capacity variance in hrs 2,200 hrs (A)
x standard fixed overhead absorption rate per hour x TK3.70
Fixed overhead volume capacity variance in TK 8,140 (A)

Actual sales minus the standard cost of sales 27,700

(F) (A)
Cost variances TK TK
Material price 600
Material usage 500
Labour rate 200
Labour efficiency 3,400
Labour idle time 1,000
Variable overhead expenditure 200
Variable overhead efficiency 510
Fixed overhead expenditure 4,560
Fixed overhead volume 6,290
efficiency
Fixed overhead volume capacity 8,140
10,900 14,500 3,600
Actual profit before sales and (A)
administration costs 24,100
Sales and administration costs 18,000
Actual profit, June 20X7 6,100

Check TK TK
Sales 95,600
Materials 9,800
Labour 16,800
Variable overhead 2,600
Fixed overhead 42,300
Sales and administration 18,000
89,500
Actual profit 6,100

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 Tk.
Revenue from 4,850 boomerangs should be (TK 20) 97,000
but was 95,600
Selling price variance 1,400 (A)

Budgeted sales volume 5,100 units

Actual sales volume 4,850 units
Sales volume profit variance in units250 units
standard profit per unit × TK 6 (A)
Sales volume profit variance in TK TK 1,500 (A)
There are several ways in which an operating statement may be presented. Perhaps the most
common format is one which reconciles budgeted profit to actual profit. In this example, sales
and administration costs will be introduced at the end of the statement, so that we shall begin with
'budgeted profit before sales and administration costs'.
Sales variances are reported first, and the total of the budgeted profit and the two sales variances
results in a figure for 'actual sales minus the standard cost of sales'. The cost variances are then
reported, and an actual profit (before sales and administration costs) calculated. Sales and
administration costs are then deducted to reach the actual profit for June 2022.
SEEDY – OPERATING STATEMENT JUNE 2022
Tk Tk
Budgeted (planned) profit before sales and administration costs 30,600
Sales variances: price 1,400 (A)
Volume 1,500 (A)
2,900 (A)
(b)
(1) By-Product Inventory ...................................................... 5,000
Work in Process ......................................................... 5,000
(2) Accounts Receivable ....................................................... 4,000
Gain or Loss on Sale of By-Product ................................ 1,000
By-Product Inventory ................................................. 5,000

(c)
(i)
Costs Deluxe Model Regular Model
Direct materials Tk. 150 Tk. 112
Direct labor 16 8
Manufacturing overhead (note-1) 80 40
Total cost Tk. 246 Tk. 160
Note-1:
Manufacturing overhead rate = Tk. 2,000,000/40,000 hours= Tk. 50 per hour
Manufacturing overhead per unit of Deluxe Model = 50×1.6 = Tk. 80
Manufacturing overhead per unit of Regular Model = 50×0.8 = Tk. 40

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 (ii)
Costs Deluxe Model Regular Model
Direct materials Tk. 150.00 Tk. 112.00
Direct labor 16.00 8.00
Manufacturing overhead (note-2) 153.52 30.81
Total cost Tk. 319.52 Tk. 150.81

Note-2:
Cost Drivers Deluxe Model Regular Model
Purchase orders 33,600 50,400
Rework orders 54,000 162,000
Product testing 180,000 270,000
Machining 500,000 750,000
Total 767,600 1,232,400
Number of units 5,000 40,000
Cost per unit 153.52 30.81

Solution of the Question No. 6

(a) Open ended
(b)
i) Statement of equivalent unit
Particulars Unit Material Labor Overhead
output % unit % unit % unit
Opening WIP 10,000 - - 40 4000 40 4000
Unit completed 82,500 100 82,500 100 82,500 100 82,500
and transferred to
warehouse
Closing WIP 7,500 100 7500 50 3750 50 3750
Normal loss 5% of 5,000 -- --- --- --- -- ---
100,000
Abnormal loss 5000 100 5,000 80 4,000 80 4,000
Total 110,000 95,000 94,250 94,250

(ii)
Statement of cost per equivalent unit and total cost
Particulars Process Materials Total Material Labor and Total TK
overhead
Cost 4,27500 1,97,500 6,25000 5,18,375
Less: Recovery 7,500 7,500
from sale of 5,000
units@ 1.50 per
unit.
Total cost 4,27500 190,000 6,17500 5,18375
Equivalent units 95,000 94,250
Cost per
equivalent units
Material 6.50
Conversion 5.50
Total 12.00

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Total cost of 92,500 completed units transferred to warehouse

Cost of 10,000 units completed (Beginning) Tk. 114,000 + 4000 units x Tk. 5.5 1,36,000
Cost of 82,500 completed units @ 12 9,90,000
Total cost of 92500 completed units 11,26000
Cost of 7500 closing WIP units 69,375
Cost of 5,000 abnormal loss units 54,500
Total 12,49,875

iii)
Particulars Units TK Particulars Units TK
Opening WIP 10,000 114000 Normal loss 5,000 7,500
Units received 1,00,000 4,27500 Completed units 92,500 11,26,000
Expenses incurred: 1,97,500
Material
Labor 3,45,575 Closing WIP 7,500 69,375
Overhead 1,72,800 Abnormal loss 5,000 54,500
Total 1,10,000 12,57,375 Total 1,10,000 12,57,375

(c)
In the Book of nil Construction ltd.
Dr. Contract Account for the year ended.... Cr.

Particular Amount Particular Amount

(TK) (TK)
To Material delivered to Site 1,20,000 By Materials returned to Store 4,000
To Material from Store 40,000 By Material c/d 22,000
To Labour 1,40,000 By Material Transferred 9,000
Add. Accrued 10,000 1,50,000 By Cost of Contract c/d 3,83,000
(Balancing figure)
To Direct Expenses 60,000
Add. Accrued 6,000 66,000
To Depreciation on Plant 15,000
(80,000 - 65,000)
To Architect's Fees 2,500
To Establishment Charges 24,500
4,18,000 4,18,000
To Cost of Contract b/d 3,83,000 By Work-in-Progress A/C –
Work Certified 4,20,000
To Notional Profit c/d -Work Uncertified 23,000
(Balancing Figure) 60,000
4,43,000 4,43,000
To Costing Profit & loss A/c 36,000 By Notional profit b/d 60,000
(Working Note)
To Work-in-Progress A/c 24,000
(Balancing figure)
60,000 60,000

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Working Note:
2 Cash received
Profit Transferred = ×Notional Profit ×
3 Work Certified

Solution of the Question No. 7

(a) Open-ended.
(b) Open-ended.
(c)
(i) Total revenue of the life cycle product sales:
Year 1 3,000×250= Tk. 750,000
Year 2 4,500×250= Tk. 1,125,000
Year 3 4,800×250= Tk. 1,200,000
Year 4 5,000×175= Tk. 875,000
Year 5 1,500×175= Tk. 262,500
Total Tk. 4,212,500
Desired profit:
Year 1 3,000 (250×20%) = Tk. 150,000
Year 2 4,500 (250×20%) = Tk. 225,000
Year 3 4,800 (250×20%) = Tk. 240,000
Year 4 5,000 (175×20%) = Tk. 175,000
Year 5 1,500 (175×20%) = Tk. 52,500
Total Tk. 842,500

Total life cycle cost of the product (Tk. 4,212,500 - Tk. 842,500) Tk. 3,370,000
Less: Variable selling expenses (18,800×30) 564,000
Fixed selling expenses (350,000×5) 1,750,000 2,314,000
Cost assigned to manufacture of 18,800 units Tk. 1,056,000
Manufacturing cost per unit (1,056,000 ÷ 18,800) Tk. 56.17
(ii) Cost to manufacturing of productions in Year 1 = (3,000×65) = Tk. 195,000.
Cost remaining to last 4 years = (1,056,000 – 195,000 = Tk. 861,000.
Cost per unit = Tk. 861,000 ÷ 15,800 = Tk. 54.49
(iii)
Expected total manufacturing cost (18,800×70) 1,316,000
Less calculated life cycle manufacturing cost 1,056,000
Excess cost to be increased Tk. 260,000
Expected profit will be= (842,500 – 260,000) = Tk. 582,500.
Comment: The company should reduce the variable cost by (564,000 – 260,000) = Tk. 304,000 to
maintain the target profit margin or to increase the selling price in Year 4 and 5 by the same
amount Tk. 260,000 i.e. per unit sale price would be (175+260,000/6,500) = Tk. 215.

=THE END=

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