CMA JUNE, 2020 EXAMINATION

PROFESSIONAL LEVEL-I
SUBJECT: 102. COST ACCOUNTING
Model Solution

Solution of Question No. 1.

(a) Conversion Cost: It is the total cost of converting a raw material into finished product. This term
is used to denote the sum of direct labor and factory overhead costs in the production of a product.
In other words, conversion cost is the factory cost minus direct material cost. Appropriate use of
this cost can be made in certain managerial decision. As an example Cement grinding units are
used such conversion Cost to subcontract the production in different locations/ In case of capacity
utilizations.
(b) Production Overhead: Also known as factory Overhead, works Overhead or manufacturing
Overhead. These are those overheads which are concerned with the production function. It
includes indirect materials, Indirect Labor and indirect expenses in producing goods or services.
(i) Indirect Material – Examples are Coal, Oil, Grease, etc stationery in Factory office, cotton
waste, brush, sweeping broom etc.
(ii) Indirect Labor – Example are, Salary of Factory manager, factory office staff, inspector &
supervisor, watchman etc
(iii) Indirect Expenses – Example are Factory rent, Depreciation of Plant, repair & maintenance
of plant, insurance of factory building, factory lighting & power, internal transport cost.
(c)
Statement showing the overhead distribution
Expenses Basis of Apportionment Total Production Department
Tk. Casting Molding Machining Gen.
Dept. Dept. Dept. Mgt.
Tk. Tk. Tk. Dept.
Tk.
Direct Labor 6,000 6,000
Indirect Material Actual 3,900 1,735 930 935 300
Indirect Labor Direct Labor no (4:5:6:3) 9,000 2,000 2,500 3,000 1,500
Rent Area Sq meters (2:2:3:1) 8,800 2,200 2,200 3,300 1,100
Canteen Expenses Direct Labor no (4:5:6:3) 1,800 400 500 600 300
Lighting Elect. Points (4:3:2:2) 2,200 800 600 400 400
Depreciation@12% Assets Value (5:6:6:3) 2,400 600 720 720 360
34,100 7,735 7,450 8,955 9,900
Apportionment of Ration of Service rendered
Service Department (2:2:1)
Expenses
3,984 3,984 1,992 -9,900
Total 34,100 11,719 11,434 10,947
Labor Hours worked 4,000 5,000 6,000
Labor hours Rates Total/Labor Hours Worked 2,929 2,286 1,824
Workings;

(1) Total Assets = Tk. 5,000+Tk.6,000+Tk.6,000+Tk.3,000 = Tk20,000

Depreciation= Tk.20,000@12% = Tk. 2,400
(2) Labor Hours worked= No. Working Days X Hours of Daily work X No. of workers
Casting : 25 X 8 X 20 = 4,000
Molding: 25 X 8 X 25 = 5,000
Machining: 25 X 8 X 30 = 6,000

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Solution of Question No. 2.
(a) Economic Order Quantity (EOQ):
The total Costs of a material usually consist of Buying Cost + Total Ordering Cost + Total
Carrying Cost, Economic Order Quantity is “The size of the order for which both ordering and
carrying cost are minimum.
Ordering Cost: The costs which are associated with the ordering of material. It includes cost
of staff posted for ordering of goods, expenses incurred on transportation, inspection
expenses of incoming materials etc.
Carrying Cost: The cost of handling the inventories. It includes the cost of capital invested in
inventories, Cost of storage, Insurance etc.

2AO

EOQ = ----------

Where,

A= Annual Demand

O= Ordering Cost per order

C= Carrying Cost per unit per annum

(b) Statement Showing Economic Order Quantity

Particulars Order Size
80 125 250 400 500 1,000 2,000
No of orders (Multiples of 100 25 16 8 5 4 2 1
units)
{Total Qty / Qty per order}
Value per order in Tk. 800 1,237.50 2,450 3,920 4,850 9,000 19,000
[Order Size X Rate per unit Tk.]
Average Inventory in Tk. [ Value 400 618.75 1,225 1,960 2,425 4,500 8,500
per Order / 2]
Cost of Materials [Annual usage 20,000 19,800 19,600 19,600 19,400 19,200 19,000
X rate per unit Tk.]
Ordering Cost [No of order X 125 80 40 25 20 10 5
Rate per order]
Carrying Cost 10% of average 40 61.88 122.50 196 242.50 480 950
inventory
Total Cost [Cost Material + 20,165 19,941.88 19,762.50 19,821 19,662.50 19,690 19,955
Ordering Cost + carrying Cost]

Therefore inventory cost minimum at ordering quantity 500 units at a cost of Tk. 19,662.50 EOQ is
500 units.

Through formula it is 447 units if we consider multiple of 100 than it will be 500 units.

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Solution of the Question # 3
ABC Jute Mills Ltd.
Forecast Income Statement
for the year ending June 30, 2021

Sales Tk. 290,70,000

Cost of goods sold:
Direct Materials Tk. 98,49,600
Direct Labor 76,56,000
Factory Overhead:
Variable factory overhead Tk. 29,66,400
Fixed factory overhead 25,00,000 59,66,400
Tk. 229,72,000
Gross Profit 60,98,000
Commercial Expenses:
Marketing Expenses Tk. 28,08,000
Administrative Expenses 20,40,000 Tk. 48,48,000
Projected Income for 2021 Tk. 12,50,000

To achieve the Tk. 1250,000 operating income, a sales price increase of Tk. 270,000 must be
added to the 20% volume increase-

Present Sales Tk. 24,000,000

Add 20% volume increase 4,800,000
Tk. 28,800,000
Add additional price increase 270,000
Total 2,907,000

Cost of goods sold Tk. 22,972,000

Commercial Expenses 4,848,000
Desired operating Income 1,250,000
Sales needed Tk. 29,070,000
Less 28800,000
Increase 270,000
Calculations:
Direct materials Tk. 7,600,000
+ 608,000 (8% x Tk. 7,600,000)
Tk. 8,208,000
+1,641,600 (20% x Tk. 8,208,000)
Tk. 9,849,600
Direct Labor Tk. 5,800,000
+580,000(10% x Tk. 5,800,000)
63,80,000
+1276,000(20% x Tk. 6,380,000)
Tk. 7656000
Variable factory overhead Tk. 2400000
+ 72,000 (3% x Tk. 2,400,000)
Tk. 2,472,000
+ 494,400 (20% x Tk. 2,472,000)
Tk. 2,966,400
Marketing Expenses Tk. 2,700,000
108,000 (4% x Tk. 2,700,000)
Tk. 2,808,000
Administrative Expenses Tk. 2,000,000
40,000 (2% x Tk. 2,000,000)
Tk. 2,040,000

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Solution of the Question # 4

Activity Cost Rate

Machining Machine hours Tk. 750,000/(25,000+50,000) = Tk. 10 per machine hour
Set-up Production runs Tk. 240,000/(50+50) = 2400 per production run
Inspection Inspection hours Tk. 210,000/(1000+500) = Tk. 140 per inspection hour

Overhead Cost per unit:

Scientific Financial
Machining Tk. 10x25000 250000
Tk. 10x50000 500000
Set up Tk. 2400x50 120000
Tk. 2400x50 120000
Inspection Tk. 140x1000 140000
Tk. 140x500 70000
Total manufacturing overhead cost 510000 690000
Number of units 50000 100000
Manufacturing overhead cost per unit Tk. 10.20 Tk. 6.90

Manufacturing cost for unit:

Direct material Tk. 150,000/50000 3.00
Tk. 300000/100000 3.00
Direct Manufacturing Tk. 50000/50000 1.00
Tk. 100000/100000 1.00
Manufacturing Overhead 10.20 6.90
Manufacturing cost per unit 14.20 10.90

Solution of Question No. 5

Zakir Industries Ltd.
R-1 Computation of Equivalent Production.
Materials Conversion
Units Units
Transferred out 19,000 19,000
Less beginning inventory (all units) 3,000 3,000
Started and finished this period 16,000 16,000
Add beginning inventory (work this period) 6,000 6,000
Equivalent production 23,000 23,000
R-2 (a) Work in process beginning inventory ………………………………. Tk. 52,000
Cost added by Department
Materials ………………………………………………………….…… 92,000
Direct Labour …………………………………………………………. 1,54,000
Factory overhead and service department cost (132,000 + 66,000) 1,98,000
Total cost to be accounted for ………………………………………. Tk. 4,96,000
Miracle Mix: Units Unit cost Amount
Beginning inventory 62,000 Tk. 1.00 Tk. 62,000
From December-12 Purchase 21,200 1.25 26,500
Total usage in December 83,200 88,500
By-Pro:
From beginning inventory 50,000 0.07 3,500
Cost of material added during the month Tk. 92,000
Allocation of service department factory overhead
Building maintenance Tk. 30,000
Time keeping and personnel 16,500
Others 19,500 66,000
Cost of factory overhead during December Tk. 1,98,000

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R-2 (b) Computation of unit cost for material labour and overhead:
Materials (Tk. 92,000 / 23,000) = Tk. 4 per unit
Direct labour (Tk. 154,000 / 22,000) = 7 per unit
Factory overhead (Tk. 198,000 / 22,000) = 9 per unit
Total unit cost ………………………………………….. Tk. 20 per unit
R-2 (c) Transferred to Finishing Department
From beginning inventory: Tk. 20 per unit
Inventory December-1 Tk. 52,000
Materials added (3,000x1/3 x Tk. 4) = 4,000
Direct labour added (3,000x1/2 x Tk. 7) = 10,500
Factory overhead added (3,000x1/2 x Tk. 9)= 13,500
Tk. 80,000
From current production:
Units started and finished (16,000x Tk. 20)= 3,20,000
Total cost of units transferred to Finishing Department Tk. 400,000
Work in process inventory December-31
Materials (6000 x Tk. 4) = Tk. 24,000
3
Direct labour (6,000 x Tk. 7x /4)= 31,500
Factory overhead (6,000 x Tk. 9 x ¾)= 40,500
Total cost of work in process inventory Tk. 96,000
R-3 Equivalent production computation:
Materials Conversion
Units Units
Transferred out 19,000 19,000
Ending inventory 6,000 4,500
25,000 23,500
Total Fabrication Department cost to be accounted for this is the same as shown answer 2 (a)
Unit costs for materials, labour and factory overhead:
Material : Tk. 13,000 + Tk. 92,000 = 105,000 / 25,000 = 4.20 per unit
Labour : Tk. 17,500 + Tk. 1,54,000 = Tk. 1,71,500 / 23,500 = Tk. 7.30 per unit
Factory overhead: Tk. 21,500 + 198,000 = Tk. 2,19,500 / 23,500 = Tk. 9.34 per unit
Total unit cost ………………………………………….. = Tk. 20.54
Cost of units transferred to Finishing Department:
19,000 x 20.84 = Tk. 3,95,960. To avoid decimal discretion in cost transferred to Finishing
Department is computed as under:
Tk. 4,96,000 – Tk. 1,00,080 (ending work in process) = Tk. 3,95,920
Cost of the ending work in process inventory in the Fabrication Department:
Materials: (6,000 x 4.20) = Tk. 25,200
Labour: (6,000x3/4 x Tk. 7.20) = 32,850
Factory Overhead: (6,000x3/4 x Tk. 9.34) = 42,030
Total cost of ending work in process Tk. 1,00,080

= THE END =

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