CMA JANUARY 2022 EXAMINATION

Intermediate Level-I
Cost Accounting

MODEL SOLUTIONS
Solution of the Q. No. 1
1) (c)
2) (c)
3) (c)
4) (b)
5) (d)
6) (d)
7) (b)
8) (a)
9) (a)
10) (c)
Solution of the Q. No. 2
(a) False.
Correct answer: Expense is a part of cost.
(b) True.
(c) False.
Correct answer: Manufacturing cost is equal to sum of direct materials and conversion cost.
Or, Manufacturing cost is equal to sum of prime cost and manufacturing overhead.
(d) True.
(e) True.

Solution of the Q. No. 3

Column A Column B
(a) Job costing (ix) Customized goods
(b) Process costing (iv) Similar products and mass production
(c) Service costing (vii) Transportation firms
(d) Joint products (vi) More output from one input
(e) Standard costing (i) Variance analysis

Solution of the Q. No. 4

a)
i. During periods of curtailed activity, it is just as necessary to keep costs down as it is when operating at full
capacity. Assuming that the incentive wage plan resulted in greater labor efficiency and lower costs per unit
at full capacity, then the labor cost per unit should be lower in a slack period if the incentive wage scale is
continued. A shorter workweek or some other system of sharing the work would be indicated.
ii. Ordinarily, it is not a propitious time to initiate an incentive wage plan when a plant is operating far below
capacity because the worker is already fearful of something less than full employment. If a reasonable day’s
work is being received for the going rate of pay, postponement of the incentive plan is indicated. However,
there is a natural tendency for workers to reduce output during such periods, thereby increasing costs, with
a tendency to bring about further reduction in the volume that can be sold. With full explanation and
understanding of the situation, the incentive wage could be introduced with a plant operating at 60%
capacity.

b)
The spending andidle capacity variances are usually computed each period by analyzing any over or under-
applied overhead. The spending variance is so titled because It is computed by comparing actual overhead
with budgeted or allowed overhead. The idle capacity variance, computed by comparing applied overhead
with budgeted overhead, is so called because it indicates the effect on overhead of operating at a capacity
different from that used in computing the predetermined overhead rate.
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c)
1.

= = 5,000 pairs of shoes

2. Weekly demand = Monthly demand ÷ 4 = 10,000 ÷ 4 = 2,500 pairs of shoes per week
Purchasing lead time = 1 week
Reorder point = 2,500 pairs of shoes per week × 1 week = 2,500 pairs of shoes
3.
Safety Demand Stockout Probability Relevant Number Expected Relevant Relevant
Stock Levels in Units of Stockout of Stockout Carrying Total
Level Resulting (3)= Stockouts Costs Orders Costs Costs Costs
in in (2)– (4) (5)=(3)×Tk.2 per Year (7)= (8)= (9)=(7)+(8)
Units Stockouts 2,500–(1) (6) (4)×(5)×(6) (1)×Tk.
(1) (2) 2.40
0 2750 250 0.2 Tk. 500 24 Tk. 2,400
3000 500 0.04 1000 24 960
3,360 Tk. 0 Tk. 3,360
250 3000 250 0.04 500 24 480 600 1,080
500 0 1200 1,200

Above table presents the safety stock computations for Warehouse OR2 whenthe reorder point excluding
safety stock is 2,500 pairs of shoes. The exhibit shows that annualrelevant total stockout and carrying costs
are the lowest ($1,080) when a safety stock of 250pairs of shoes is maintained. Therefore, Warehouse OR2
should hold a safety stock of 250 pairs.
As a result, Reorder point with safety stock = 2,500 pairs + 250 pairs = 2,750 pairs. Reorderquantity is
unaffected by the holding of safety stock and remains the same as calculated inrequirement 1.
Reorder quantity = 5,000 pairs
Warehouse OR2 should order 5,000 pairs of shoes each time its inventory of shoes falls to 2,750pairs.

Solution of the Q. No. 5

(a) Open-ended.
(b) Open-ended.
(c)
Falcon Incorporation
Quality Cost Report
For the years ended 31 December 2021 and 2020
2021 2020
Tk. Tk. % of Tk. Tk. % of
Sales Sales
Prevention Costs:
Quality engineering 570,000 420,000
Statistical process control 180,000 -
System development 750,000 1,500,000 2.00% 480,000 900,000 1.20%
Appraisal Costs:
Inspection of materials 900,000 750,000
Packaging inspection 240,000 210,000
Field servicing 900,000 2,040,000 2.72% 1,200,000 2,160,000 2.88%
Internal Failure Costs:
Rework 1,500,000 1,050,000
Scrap 1,125,000 630,000
Repairs 1,200,000 810,000
Design changes 975,000 4,800,000 6.4% 720,000 3,210,000 4.28%
External Failure Costs:
Returns 60,000 30,000
Warranty 1,050,000 3,600,000
Product recalls 750,000 1,860,000 2.48% 2,100,000 5,730,000 7.64%
Total Quality Costs 10,200,000 13.60% 12,000,000 16.00%

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Solution of the Q. No. 6
(a) An advertising campaign for Pepsi is likely to be very specific to that individual client. Job
costing enables all the specific aspects of each job to be identified. In contrast, the
processing of checking account withdrawals is similar for many customers. Here, process
costing can be used to compute the cost of each checking account withdrawal.
b)
1. Number of units manufactured ............................. 20,000
Standard labor time per unit (18 minutes ÷ 60
minutes per hour) ............................................. × 0.3
Total standard hours of labor time allowed ............ 6,000
Standard direct labor rate per hour ....................... × Tk. 12
Total standard direct labor cost ............................ Tk. 72,000
Actual direct labor cost ........................................ Tk. 73,600
Standard direct labor cost .................................... 72,000
Total variance—unfavorable ................................. Tk. 1,600
2.
Labor Rate Variance = AH (AR – SR)
5,750 hours (Tk. 12.80 per hour* – Tk. 12.00 per hour) = Tk. 4,600 U
*Tk. 73,600 ÷ 5,750 hours = Tk. 12.80 per hour
Labor Efficiency Variance = SR (AH – SH)
Tk. 12 per hour (5,750 hours – 6,000 hours) = Tk. 3,000 F
3.
Variable Overhead Spending Variance = AH (AR – SR)
5,750 hours (Tk. 3.80 per hour* – Tk. 4.00 per hour) = Tk. 1,150 F
*Tk. 21,850 ÷ 5,750 hours = Tk. 3.80 per hour
Variable Overhead Efficiency Variance = SR (AH – SH)
Tk. 4 per hour (5,750 hours – 6,000 hours) = Tk. 1,000 F
c)
1. Computation of the total cost per EU:
Cost per EU for materials ..............Tk. 25.40
Cost per EU for conversion..................18.20
Total cost per EU ...........................Tk. 43.60
2. Computation of equivalent units in ending inventory:
Materials Conversion
Units in ending inventory ................ 300 300
Percentage completed ...................... 70% 60%
Equivalent units of production .......... 210 180
3. Computation of equivalent units required to complete the beginning inventory:
Materials Conversion
Units in begining inventory ................ 400 400
Percentage completed ...................... 20% 60%
Equivalent units of production .......... 80 240
4. Units Transferred to the next department: 3,100
Units from the beginning inventory 400
Units started and completed during the period 2,700
5.

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Cost Reconciliation:
Equivalent Units
Total Materials Conversions
Cost
Cost accounted for as follows:
Transferred to the next department:
From the beginning inventory:
Cost in the beginning inventory Tk. 11,040
Cost to complete these units:
Materials at Tk. 25.4 per EU 2032 80
Conversion at Tk. 18.2 per EU 4,368 240
Total cost from beginning inventory 17,440
Units started and completed during the period at
Tk. 43.60 per unit 117,720 2,700 2,700
Total cost transferred to the next department 135,160
Work in process, ending:
Materials at Tk. 25.4 per EU 5,334 210
Conversion at Tk. 18.2 per EU 3,276 180
Total work in process, ending 8,610
Total cost accounted for Tk. 143,770

Solution of the Q. No. 7

a) No, ABC systems apply equally well to service companies such as banks, railroads, hospitals,
and accounting firms, as well merchandising companies such as retailers and distributors.
b)
1.
Production Sales
Method Method

Revenues
Main product Tk. 682,240a Tk. 682,240
Byproduct - 65,000d
Total revenues 682,240 747,240
Cost of goods sold
Total manufacturing costs 500,000 500,000
Deduct value of byproduct production 85,000b 0
Net manufacturing costs 415,000 500,000
Deduct main product inventory 74,700c 90,000e
Cost of goods sold 340,300 410,000
Gross margin Tk. 341,940 Tk. 337,240

a 42,640 × Tk.16.00
b 8,500 × Tk.10.00
c (9,360/52,000) × Tk.415,000 = Tk.74,700
d 6,500 × Tk.10.00
e (9,360/52,000) × Tk.500,000 = Tk.90,000
2.
Production Sales
Method Method
Main Product Tk. 74,700 Tk. 90,000
Byproduct 20,000a 0

a Ending inventory shown at unrealized selling price.

BI + Production – Sales = EI
0 + 8,500 – 6,500 = 2,000 pounds
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Ending inventory = 2,000 pounds × Tk.10 per pound = Tk.20,000

c)

1. Snappy’s operating income in 2021 is as follows:

Total for Per Unit
250,000 Tiles (2) = (1) ÷ 250,000
(1)
Revenues (Tk. 4 × 250,000) Tk. 1,000,000 Tk. 4.00
Purchase cost of tiles (Tk. 3 × 250,000) 750,000 3.00
Ordering costs (Tk. 50 × 500) 25,000 0.10
Receiving and storage (Tk. 30 × 4,000) 120,000 0.48
Shipping (Tk. 40 × 1,500) 60,000 0.24
Total costs 955,000 3.82
Operating income Tk. 45,000 Tk. 0.18

2. Price to retailers in 2022 is 95% of 2021 price = 0.95 × Tk. 4 = Tk. 3.80; cost per tile in 2022 is
96% of 2021 cost = 0.96 × Tk. 3 = Tk. 2.88.
Snappy’s operating income in 2022 is as follows:
Total for Per Unit
250,000 Tiles (2) = (1) ÷ 250,000
(1)
Revenues (Tk. 3.80 × 250,000) Tk. 950,000 Tk. 3.80
Purchase cost of tiles (Tk. 2.88 × 250,000) 720,000 2.88
Ordering costs (Tk. 50 × 500) 25,000 0.10
Receiving and storage (Tk. 30 × 4,000) 120,000 0.48
Shipping (Tk. 40 × 1,500) 60,000 0.24
Total costs 925,000 3.70
Operating income Tk. 25,000 Tk. 0.10

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3. Snappy’s operating income in 2022, if it makes changes in ordering and material handling, will
be as follows:
Total for Per Unit
250,000 Tiles (2) = (1) ÷ 250,000
(1)
Revenues (Tk. 3.80 × 250,000) Tk. 950,000 Tk. 3.80
Purchase cost of tiles (Tk. 2.88 × 250,000) 720,000 2.88
Ordering costs (Tk. 25 × 200) 5,000 0.02
Receiving and storage (Tk. 28 × 3,125) 87,500 0.35
Shipping (Tk. 40 × 1,500) 60,000 0.24
Total costs 872,500 3.49
Operating income Tk. 77,500 Tk. 0.31

Through better cost management, Snappy will be able to achieve its target operating income of Tk.
0.30 per tile despite the fact that its revenue per tile has decreased by Tk. 0.20 (Tk. 4.00 – Tk.
3.80), while its purchase cost per tile has decreased by only Tk. 0.12 (Tk. 3.00 – Tk. 2.88).

………… The End ……….

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