CMA SPECIAL EXAMINATION-2021(NOVEMBER)

PROFESSIONAL LEVEL-I
SUBJECT: 102. COST ACCOUNTING
Time: Three hours Full Marks: 100
 All questions are to be attempted.
 Show computations, where necessary.
 Answer must be brief, relevant, neat and clean.
 Start answering each question from a fresh sheet.

Q. No. 1
(a) Why are product costs sometimes called inventoriable costs? Describe the flow of such costs
in a manufacturing company from the point of incurrence until they finally become expenses
on the income statement.
(b) Expenditure may be divided into two general categories: capital expenditures and revenue
expenditures.
(i) Distinguish between these two categories of expenditures and their treatment in the
accounts.
(ii) Discuss the impact on both present and future statement of financial position and
statement of comprehensive income of improperly distinguishing between capital and
revenue expenditures.
(iii) What criteria do firms generally use in establishing a policy for classifying expenditures
under these two general categories?
(c) Ron Howard recently took over as the controller of Johnson Brothers Manufacturing. Last
month, the previous controller left the company with little notice and left the accounting
records in disarray. Ron needs the ending inventory balances to report first-quarter numbers.
For the previous month (March 2021) Ron was able to piece together the following
information:
Direct materials purchased Tk. 120,000
Work-in-process inventory, 3/1/2021 Tk. 35,000
Direct materials inventory, 3/1/2021 Tk. 12,500
Finished-goods inventory, 3/1/2021 Tk. 160,000
Conversion costs Tk. 330,000
Total manufacturing costs added during the period Tk. 420,000
Cost of goods manufactured 4 times direct materials used
Gross margin as a percentage of revenues 20%
Revenues Tk. 518,750

Required: Calculate the cost of:

(i) Finished-goods inventory, 3/31/2021
(ii) Work-in-process inventory, 3/31/2021
(iii) Direct materials inventory, 3/31/2021
[Marks: (5+6+9) = 20]
Q. No. 2
(a) An inventory planning and control system is designed to minimize the total cost of ordering
and carrying inventory. Therefore, inventory control is good as long as the investment in
inventory is declining. Discuss.
(b) Kalatia Incorporation prepares DVDs with antivirus program to be sold in computer retail
shops. The company President has been wondering how much blank DVDs to buy at a time,
and when an order should be placed. He wants a safety stock of 140 DVDs and has
estimated that his company uses 9,000 DVDs annually. Ordering cost is Tk.6.40 per order
and carrying cost per DVD in inventory is Tk.2.00. The company operates 300 days a year. It
takes 7 days from placement of an order to arrival of the DVDs.

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CMA SPECIAL EXAMINATION-2021(NOVEMBER)
PROFESSIONAL LEVEL-I
SUBJECT: 102. COST ACCOUNTING
Q. No. 2.(cont’d...)
Required:
(i) Determine the economic order quantity.
(ii) Compute the order point.
(iii) Disregard the amount of safety stock and assume the following estimates:
Cost of a stock out is Tk.32 per occurrence and number of orders per year is 50. There will
be no change in carrying cost.
Estimated stock out probabilities:
Units of safety stock Probability of stock out (%)
50 70
100 45
200 25
300 10
400 05
Find out the optimal safety stock for Kalatia Incorporation.
(c) From the following information of Shakta Company Ltd, prepare a Store Ledger Account
using weighted-average method:
April 1 Beginning inventory 800 units @ Tk. 10
6 Received 600 units @ Tk. 11
9 Issued 700 units
14 Received 500 units @ Tk. 12
21 Issued 900 units
25 Received 700 units @ Tk. 13
30 Issued 300 units
30 Shortage 20 units
[Marks: (4+8+8) = 20]
Q. No. 3
(a) When and why must predetermined factory overhead rates be used? Indicate the
impracticalities and inaccuracies of charging actual overhead to jobs and products.
(b) Star company’s normal operating capacity is rated at 47,500 machine hours per month. At
this operating level, fixed factory overhead is estimated to be Tk. 17,100 and variable factory
overhead is estimated to be Tk. 20,900. During November, the company operated 50,000
machine hours. Actual factory overhead for the month totaled Tk. 39,300.
Required:
Compute 1) the over- or under-applied factory overhead and 2) the spending and idle
capacity variances.
(c) Keraniganj Company having three production departments P, Q, R, and one service
department S furnishes the following particulars:
Particulars Taka
Rent and rates 18,000
Electricity 8,500
Repairs to plant 9,000
Power 12,500
Insurance 3,000
Depreciation 15,000
Medical expenses 4,500
Workmen’s compensation insurance 6,500

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CMA SPECIAL EXAMINATION-2021(NOVEMBER)
PROFESSIONAL LEVEL-I
SUBJECT: 102. COST ACCOUNTING
Q. No. 3.(cont’d...)
The following information is also available:
P Q R S
Indirect labor (Tk.) 20,000 15,000 17,500 12,500
Area (sq. ft.) 2,000 1,600 1,400 1,000
No. of employees 30 20 25 15
Value of plant (Tk.) 50,000 60,000 30,000 10,000
H. P. of plants 120 80 40 10
No. of lighting points 12 15 18 6
Required:
Carry out the apportionment of overhead to the production departments assuming service
department S is a canteen.
[Marks: (4+6+10) = 20]
Q. No. 4
(a) If a company fully allocates all of its overhead costs to jobs, does this guarantee that a profit
will be earned for the period?
(b) Describe three major source documents used in job-costing systems.
(c) The Manes Company has two products. Product 1 is manufactured entirely in department X.
Product 2 is manufactured entirely in department Y. To produce these two products, the
Manes Company has two support departments: A (a materials-handling department) and B
(a power-generating department).
An analysis of the work done by departments A and B in a typical period follows:
Supplied by Used by
A B X Y
A - 100 250 150
B 500 - 100 400
The work done in department A is measured by the direct labor-hours of materials-handling
time. The work done in department B is measured by the kilowatt-hours of power. The
budgeted costs of the support departments for the coming year are as follows:
Department A Department B
(Materials Handling) (Power Generation)
Variable indirect labor and
indirect materials costs Tk. 70,000 Tk. 10,000
Supervision 10,000 10,000
Depreciation 20,000 20,000
100,000 40,000
+ Power costs + Materials-handling costs
The budgeted costs of the operating departments for the coming year are Tk. 1,500,000 for
department X and Tk. 800,000 for department Y.
Supervision costs are salary costs. Depreciation in department B is the straight-line
depreciation of power-generation equipment in its 19th year of an estimated 25-year useful
life; it is old, but well-maintained, equipment.
Required:
(i) What are the allocations of costs of support departments A and B to operating
departments X and Y using (a) the direct method, (b) the step-down method (allocate
department A first), (c) the step-down method (allocate department B first), and (d) the
reciprocal method?
(ii) An outside company has offered to supply all the power needed by the Manes
Company and to provide all the services of the present power department. The cost of
this service will be Tk. 40 per kilowatt-hour of power. Should Manes accept? Explain.
[Marks: (4+4+12) = 20]
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CMA SPECIAL EXAMINATION-2021(NOVEMBER)
PROFESSIONAL LEVEL-I
SUBJECT: 102. COST ACCOUNTING
Q. No. 5
(a) What is the justification for spreading the cost of lost units over the remaining good units?
Should the cost of these units ever be charged to overhead? Will the answer be different if
units are lost (i) in the originating department, (ii) at the beginning of a department’s
operations, (iii) during operations, or d) at the end of operations?
(b) The Barilgaon Company is a furniture manufacturer with two departments: molding and
finishing. The company uses the weighted-average method of process costing. In June 2021,
the following data were recorded for the finishing department:
Units of beginning work in process inventory 12,500
Percentage completion of beginning work in process units 25%
Cost of direct materials in beginning work in process Tk. 0
Units started 87,500
Units completed 62,500
Units in ending inventory 25,000
Percentage completion of ending work in process units 95%
Spoiled units 12,500
Total costs added during current period:
Direct materials Tk. 819,000
Direct manufacturing labor Tk. 794,500
Manufacturing overhead Tk. 770,000
Work in process, beginning:
Transferred-in costs Tk. 103,625
Conversion costs Tk. 52,500
Cost of units transferred in during current period Tk. 809,375
Conversion costs are added evenly during the process. Direct material costs are added when
production is 90% complete. The inspection point is at the 80% stage of production. Normal
spoilage is 10% of all good units that pass inspection. Spoiled units are disposed of at zero
net disposal value.
Required:
For June, summarize total costs to account for and assign these costs to units completed
and transferred out, to abnormal spoilage, and to units in ending work in process.
[Marks: (6+14) = 20]

= THE END =

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