CMA MAY-2023 EXAMINATION

INTERMEDIATE LEVEL I
COST ACCOUNTING

Course Code : CM121 Total Marks : 100

Reading Time : 15 minutes Writing Time : 180 minutes

Instructions to Candidates
 You MUST NOT write anything during the reading time.
 You should attempt ALL questions.
 Answers should be properly structured and relevant.
 Carefully read ALL the requirements and sub-questions before attempting a specific
question.
 ALL answers must be written in the answer book.
 AVOID WRITING/MARKING on the question paper at any time which may cause
disciplinary action.
 Start answering each question from a fresh sheet.
 Answers should be clearly numbered with the sub-question number.

Allowable Materials
 Writing Stationaries
 Non-programmable Calculator

Assessment Structure
Sub- Expected Time
Marks
question Required
Question 1 Multiple Choice Questions 10 10 20 minutes
Section
Question 2 Modified True/False 5 5 10 minutes
A
Question 3 Matching 5 5 10 minutes
Question 4 Essay/Computational/Case 3 20 32.50 minutes
Section Question 5 Essay/Computational/Case 3 20 32.50 minutes
B Question 6 Essay/Computational/Case 3 20 32.50 minutes
Question 7 Essay/Computational/Case 3 20 32.50 minutes
Revision 10 minutes
Total 100 180 minutes

RESTRICTED USE
This paper MUST NOT BE REMOVED from the examination venue

Do not turn the page until instructed

 SECTION A [20 MARKS]
THERE ARE 3 (THREE) QUESTIONS IN THIS SECTION. ANSWER ALL THE
QUESTIONS IN THE ANSWER SCRIPT FOLLOWING THE EXAMPLE PROVIDED FOR
THE SPECIFIC QUESTION.

QUESTION 1 [10 × 1 = 10 MARKS]

There are ten (10) multiple-choice questions with five options. Pick the option that best
explains the given question. Write your answer on the answer script [DO NOT PUT ANY
MARK ON THE QUESTION PAPER]. Follow the example given below in providing your
answer.

Example:
(i) ICMAB stands for the –
(a) Institute of Cost Management Accounting of Bangladesh
(b) Institute of Cost and Management Accountants of Bangladesh
(c) Institute for Cost Managers and Accounting of Bangladesh
(d) Institute of Cost Management Accountants of Bangladesh
(e) Industrial Cost Management Accountants of Bangladesh

Answer: (i) (b)

(i) Which of the following is a characteristic of cost accounting?

(a) It is applicable for all types of organizations.
(b) It follows GAAP strictly.
(c) It deals with only past data.
(d) It has internal users only.
(e) It is mandatory.
(ii) Unexpired portion of cost is termed as:
(a) Expense
(b) Revenue
(c) Loss
(d) Asset
(e) Liability
(iii) Conversion cost equals:
(a) All direct costs
(b) All indirect cost
(c) All direct and indirect cost
(d) Direct materials plus direct labor
(e) Direct labor plus manufacturing overhead
(iv) Under economic order quantity (EOQ),
(a) Ordering costs are higher than carrying costs
(b) Ordering costs are lower than carrying costs
(c) Ordering costs are equal to carrying costs
(d) Total costs are higher
(e) Materials costs are subject to discount

CMA May-2023 Examination, CM121 [Page 2 of 7]

(v) The cost of producing 90 units of an item is Tk. 7,450 and the cost of producing 130
units is Tk. 9,650. The variable cost per unit is:
(a) Tk. 82.78
(b) Tk. 74.23
(c) Tk. 55.00
(d) Tk. 77.73
(e) Tk. 2,500
(vi) Idle capacity variance is:
(a) The difference between actual and applied factory overhead
(b) The difference between applied factory overhead and budget allowance
(c) The difference between actual factory overhead and budget allowance
(d) The difference between actual and standard materials price
(e) The difference between actual and standard labor rate
(vii) Normal loss is absorbed by:
(a) Good units
(b) Spoiled units
(c) Unfinished units
(d) Sold units
(e) All units
(viii) Which method distributes service department costs to production departments only?
(a) Direct method
(b) Step method
(c) Reciprocal method
(d) Repeated allocation method
(e) Simultaneous equation method
(ix) Which of the following can be the most devastating of all components of quality
costs?
(a) Prevention costs
(b) Appraisal costs
(c) Internal failure costs
(d) External failure costs
(e) All of the above
(x) Composite cost unit is used in which costing system?
(a) Job-order costing
(b) Process costing
(c) Batch costing
(d) Contract costing
(e) Service costing

CMA May-2023 Examination, CM121 [Page 3 of 7]

QUESTION 2 [5 × 1 = 5 MARKS]
There are five (5) statements given under the question. Identify the statements as True or
False. If the statement is false, rewrite the statement on the answer script to make it ‘True’.
Reasoning is NOT required. Follow the example given below in providing your answer.

Example:
(a) ICMAB stands for the Industrial Cost Management and Accounting of Bangladesh.
Answer:
(a) False. ICMAB stands for the Institute of Cost and Management Accountants
of Bangladesh.
Note:
 You will not get any mark if you simply rewrite as ICMAB does not stand for the
Industrial Cost Management Accountants of Bangladesh.
 If the statement is true, you need NOT to rewrite the statement rather only
mention that the statement is True.
(a) Fixed cost is the costs that vary with changes in volume but unlike variable cost, do not
vary in direct proportion.
(b) Sunk Costs is a cost that is incurred to support a number of cost objects but cannot be
traced to any of them individually.
(c) Service costing is also called as operating costing
(d) In a normal job-order costing system, actual factory overhead is applied at the end of
the period.
(e) Prevention cost is the cost to measure and monitor activities. Ex: monitoring costs and
inspection.
QUESTION 3 [5 × 1 = 5 MARKS]
Match the items of column A with the most suitable items of column B. Match only one item
of column A with one item of column B. Write your answer on the answer script. Follow the
example given below in providing your answer.

Example:
Column A Column B
1. ICMAB (a) Professional accountancy body
(b) University
Answer: 1 (a)

Column A Column B
(a) Job costing (i) Variance analysis
(b) Process costing (ii) Statutory audit
(c) Service costing (iii) Prevention cost
(d) Joint products (iv) Similar products and mass production
(e) Standard costing (v) Dissimilar products and mass production
(vi) More output from one input
(vii)Transportation firms
(viii) Conversion cost
(ix) Customized goods
(x) Internal control

END OF SECTION A

CMA May-2023 Examination, CM121 [Page 4 of 7]

 SECTION B [80 MARKS]
THERE ARE 4 (FOUR) QUESTIONS IN THIS SECTION. ANSWER ALL THE QUESTIONS
IN THE ANSWER SCRIPT. SHOW ALL RELEVANT COMPUTATION.
QUESTION 4 [(4+6+10) = 20 MARKS]
(a) Is it possible for costs such as salaries or depreciation to end up as assets on the
statement of financial position? Explain.
(b) Barilgaon Manufacturers provides you with the following information:
Average usage 100 units per week
Minimum usage 70 units per week
Maximum usage 140 units per week
Lead time 5 weeks
Ordering cost per order Tk. 180
Carrying cost per unit per annum Tk. 4.5
Working weeks in a year 45 weeks
Required:
Calculate the following:
(i) Economic order quantity (ii) Re-order level
(iii) Safety stock (iv) Normal maximum inventory
(v) Absolute maximum inventory (vi) Average inventory
(c) A worker is paid Tk. 8,000 per month in addition to dearness allowance of Tk.800 per
month. He is entitled to bonus @ 10% on wages. Employer’s contribution is 8% of
wages towards contributory provident fund to which workers also contributes an equal
amount. The contribution for social security tax is 1% for both employer and worker.
The employer maintains a canteen where subsidized tea and lunch are provided to
workers and monthly subsidy of Tk. 40,000 is provided to the canteen. The total
number of employees who take advantage of the canteen is 400. Normal idle time
amounts to 20%. The worker is entitled to 15 days’ earned leave during the year. The
number of working days in a year should be taken to be 300 of 8 hours each.
Required:
Find out the labor cost per hour.
QUESTION 5 [(4+6+10) = 20 MARKS]
(a) Define process costing? Identify the situations in which process-costing systems are
appropriate.
(b) Barrett Kitchens produces a variety of items in accordance with special job orders from
hospitals, plant cafeterias, and university dormitories. An order for 2,100 cases of mixed
vegetables costs Tk. 9 per case: direct materials, Tk. 4; direct manufacturing labor, Tk. 3;
and manufacturing overhead allocated, Tk. 2. The manufacturing overhead rate includes a
provision for normal spoilage. Consider each requirement independently.
Required:
(i) Assume that a laborer dropped 420 cases. Suppose part of the 420 cases could
be sold to a nearby prison for Tk. 420 cash. Prepare a journal entry to record this
event. Calculate and explain briefly the unit cost of the remaining 1,680 cases.
(ii) Refer to the original data. Tasters at the company reject 420 of the 2,100 cases. The
420 cases are disposed of for Tk. 840. Assume that this rejection rate is considered
normal. Prepare a journal entry to record this event, and do the following:
1) Calculate the unit cost if the rejection is attributable to exacting
specifications of this particular job.
2) Calculate the unit cost if the rejection is characteristic of the production
process and is not attributable to this specific job.
3) Are unit costs the same in requirements 2i and 2ii? Explain your reasoning
briefly.

CMA May-2023 Examination, CM121 [Page 5 of 7]

(c) A person owns a bus which runs between Dhaka and Chittagong and is back for 10
days in a month. The distance from Dhaka to Chittagong is 240 kms. The bus
completes the trips from Dhaka to Chittagong and is back in the same day. The bus
goes another 10 days in a month to Rajshahi and the distance covered being 200 kms.
The trip is also completed in the same day. For the rest of 4 days, it runs in the local city.
Daily distance covered in the local city is 60 kms. The other particulars are given below:
Cost of bus Tk. 2,000,000
Depreciation 20% per annum
Salary of drivers Tk. 16,000 per month
Salary of conductor Tk. 15,000 per month
Salary of part time accountant Tk. 4,000 per month
Insurance Tk. 20,000 per annum
Diesel consumption: 6 kms per liter costing Tk. 40 per liter
Token tax Tk. 6,000 per annum
Repairs Tk. 10,000 per month
Normal capacity 50 passengers
The bus is generally occupied 90% of the capacity when it goes to Chittagong and
80% when it goes to Rajshahi. It is always full when it runs within the city.
Required:
Calculate the rate the person should charge from passenger when he wants to earn a
profit of 20% on his taking.

QUESTION 6 [(4+8+8) = 20 MARKS]

(a) “Activity-based costing is the wave of the present and the future. All companies should
adopt it.” Do you agree? Explain.
(b) The Tempura Spirits Company produces two products—methanol (wood alcohol) and
turpentine—by a joint process. Joint costs amount to Tk. 124,000 per batch of output.
Each batch totals 9,500 gallons: 25% methanol and 75% turpentine. Both products are
processed further without gain or loss in volume. Separable processing costs are
methanol, Tk. 4 per gallon, and turpentine, Tk. 2 per gallon. Methanol sells for Tk. 22
per gallon. Turpentine sells for Tk. 16 per gallon.
Required:
(i) How much of the joint costs per batch will be allocated to methanol and to
turpentine, assuming that joint costs are allocated based on the number of
gallons at splitoff point?
(ii) If joint costs are allocated on an NRV basis, how much of the joint costs will be
allocated to methanol and to turpentine?
(iii) Prepare product-line income statements per batch for requirements i and ii.
Assume no beginning or ending inventories.
(iv) The company has discovered an additional process by which the methanol (wood
alcohol) can be made into a pleasant-tasting alcoholic beverage. The selling
price of this beverage would be Tk. 55 a gallon. Additional processing would
increase separable costs Tk. 12 per gallon (in addition to the Tk. 4 per gallon
separable cost required to yield methanol). The company would have to pay
excise taxes of 20% on the selling price of the beverage. Assuming no other
changes in cost, what is the joint cost applicable to the wood alcohol (using the
NRV method)? Should the company produce the alcoholic beverage? Show your
computations.

CMA May-2023 Examination, CM121 [Page 6 of 7]

(c) Dawson, Inc., is a privately held furniture manufacturer. For August 2022, Dawson had
the following standards for one of its products, a wicker chair:
Standards per Chair
Direct materials 3 square yards of input at Tk. 5.50 per square yard
Direct manufacturing labor 0.5 hour of input at Tk. 10.50 per hour
The following data were compiled regarding actual performance: actual output units
(chairs) produced, 2,200; square yards of input purchased and used, 6,200; price per
square yard, Tk. 5.70; direct manufacturing labor costs, Tk. 9,844; actual hours of input,
920; labor price per hour, Tk. 10.70.
Required:
(i) Show computations of price and efficiency variances for direct materials and
direct manufacturing labor. Give a plausible explanation of why each variance
occurred.
(ii) Suppose 8,700 square yards of materials were purchased (at Tk. 5.70 per square
yard), even though only 6,200 square yards were used. Suppose further that
variances are identified at their most timely control point; accordingly, direct
materials price variances are isolated and traced at the time of purchase to the
purchasing department rather than to the production department. Compute the
price and efficiency variances under this approach.
QUESTION 7 [(5+5+10) = 20 MARKS]
(a) “Target costing is used during the planning cycle and drives the process of choosing
product and process design”. Explain.
(b) Define life cycle costing. Explain three broad purposes of life cycle costing.
(c) Pranto, the assistant controller of Kiruna AB had recently prepared the following quality
report comparing 2022 and 2021 quality performances.
2022(Tk.) 2021(Tk.)
Sales 90,000,000 80,000,000
Online inspection 7,00,000 600,000
Warranty liability 2250,000 3,600,000
Product testing 2,000,000 1,000,000
Scrap 2,160,000 2,000,000
Design engineering 1,800,000 800,000
Percentage of customers complaining about quality 3% 4%
Just two days after preparing the report, Tonim, the controller, had called Pranto into
his office. ‘Our plant manager, Tony, is quite upset with the recent costs of quality and
non-financial measures of quality reports that you prepared. He feels his workers have
made significant progress in improving quality at the plant but that our reports are just
not showing this. He wants to apply for various quality awards that would bring a lot of
prestige to Kiruna, but he obviously cannot do so on the basis of the numbers we are
reporting. Can you look over these quality numbers and see what you can do? I think
Tony has a point. Nobody wants Kiruna to miss out on all the wonderful press we’d get
if we won one of these quality awards.’ Pranto is quite certain that his numbers are
correct. Yet he would very much like Kiruna to win these prestigious quality awards. He
is confused about how to handle Tonim’s request.
Required:
(i) Calculate the ratio of each costs of quality category (prevention, appraisal,
internal failure and external failure) to sales in 2021 and 2022.
(ii) What do the reports indicate about the plant’s quality performance?
(iii) Is Tonim’s suggestion to Pranto to recalculate his quality numbers unethical?
Would it be unethical for Pranto to modify his analysis? What steps should Pranto
take to resolve this situation?
= END OF SECTION B =

CMA May-2023 Examination, CM121 [Page 7 of 7]