CMA JANUARY 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 2 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 proving 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) Cost accounting started as a branch of

a) Financial accounting
b) Management accounting
c) Corporate accounting
d) Vedic accounting
e) None of these

(ii) What is the basic premise of cost concept?

a) Cost ascertainment
b) Tax compliance
c) Financial audit
d) Profit analysis
e) None of these

(iii) Which type of costing do toy-manufacturing companies use?

a) Multiple costing
b) Process costing
c) Unit costing
d) Batch costing
e) None of these

(iv) Average method of pricing the material issues is useful when -

a) Material prices are rising
b) Material prices are falling
c) Material prices are constant
d) Material prices are fluctuating
e) All of these.

CMA January 2023 Examination, CM121 [Page 2 of 7]

(v) In element-wise classification of overheads, which one of the following is not included
a) Fixed overheads
b) Indirect labor
c) Indirect materials
d) Indirect expenditure
e) All of these

(vi) Costs associated with storage of finished goods such as spoilage, obsolescence and
insurance of goods are classified as
a) Carrying costs
b) Purchasing costs
c) Stock-out costs
d) Ordering costs
e) None of these

(vii) An example of shrinkage costs is

a) Incoming freight
b) Storage costs
c) Insurance
d) Clerical errors
e) None of these

(viii) The following information is available for a hotel for the latest thirty-day period.
Number of rooms available per night 40
Percentage occupancy achieved 65%
Room servicing cost incurred Tk. 3,900
The room servicing cost per occupied room-night last period, to the nearest Tk. was:
a) Tk. 3.25
b) Tk. 5.00
c) Tk. 97.50
d) Tk. 150.00
e) Tk. 200.00

(ix) Conversion cost is Tk. 20,000 and manufacturing overhead cost is Tk. 7,000, then
direct manufacturing labor cost will be
a) Tk. 27,000
b) Tk. 13,000
c) Tk. 130,000
d) Tk. 29,500
e) Tk. 150,000

(x) If relevant opportunity cost of capital is Tk. 2,950 and relevant carrying cost of
inventory is Tk. 6,700, then relevant incremental cost will be
a) Tk. 9,650
b) Tk. 2,350
c) Tk. 3,750
d) Tk. 2,750
e) Tk. 4,750

CMA January 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 proving 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) A variable cost is one that varies in total and remains constant per unit.
(b) The difference between traditional and activity-based costing system lies in direct costs.
(c) Predetermined factory overhead is used in job order costing.
(d) Ending inventory is valued at the lower of cost or NRV.
(e) A joint cost is incurred after the split-off point.
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 proving your answer.

Example:

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

Column A Column B
(1) Activity-based costing (a) Estimating cost based on estimated selling price
(2) Marginal costing (b) Cost plus pricing
(3) Target costing (c) Making a difference among the alternatives
(4) Relevant costing (d) Being indifferent of all alternatives
(5) Quality costing (e) Using multiple bases for overhead cost
(f) Using single base for overhead cost
(g) Maintaining degree of excellence of a product
(h) Classifying costs as product and period
(i) Classifying costs as variable and fixed
(j) Measuring the quality

END OF SECTION A

CMA January 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 + 8 + 8 = 20 MARKS]
(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) The finishing shop of a company employs 60 direct workers. Each worker is paid Tk. 400 as
wages per week of 40 hours. When necessary, overtime is worked upto a maximum of 15
hours per week per worker at time rate plus one-half as premium. The current output on an
average is 6 units per man hour which may be regarded as standard output. If bonus
scheme is introduced, it is expected that the output will increase to 8units per man hour. The
workers will, if necessary, continue to work overtime up to the specified limit although no
premium on incentives will be paid.
The company is considering introduction of either Halsey Scheme or Rowan Scheme of
Wage Incentive system. The budgeted weekly output is 19,200 units. The selling price is Tk.
11 per unit and the direct material cost is Tk. 8 per unit. The variable overheads amount to
Tk. 0.50 per direct labor hour and the fixed overhead is Tk. 9,000 per week.
Prepare a statement to show the effect on the company’s weekly profit of the proposal to
introduce (i) Halsey Scheme and (ii) Rowan Scheme.
(c) A factory has three production departments (P1, P2 and P3) and two service departments
(S1 and S2). Budgeted overheads for the next year have been allocated/apportioned by the
cost department among the five departments. The secondary distribution of service
department overheads is pending and the following details are given to you:
Department Overheads apportioned/ Estimated level
allocated to activity
P1 Tk. 48,000 5,000 labor hours
P2 1,12,000 12,000 machine hours
P3 52,000 6,000 labor hours
Apportionment of service department costs
S1 16,000 P1(20%), P2 (40%), P3 (20%), S2 (20%)
S2 24,000 P1(10%), P2 (60%), P3 (20%), S1 (10%)
Calculate the overhead rate of each production department after completing the distribution
of service department costs.
QUESTION 5 [3 + 3 + 14 = 20 MARKS]
(a) Distinguish between job costing and process costing with examples.
(b) Discuss briefly the salient features of service organization.
(c) The Keraniganj 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

CMA January 2023 Examination, CM121 [Page 5 of 7]

 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.
QUESTION 6 [Marks: 4+4+12 = 20]
(a) Is a favorable variance always good for an organization? Justify with examples.
(b) Distinguish between joint products and byproducts with examples.
(c) The Kalatia Corporation has a machining facility specializing in jobs for the aircraft
components market. Kalatia’s previous simple job-costing system had two direct-cost
categories (direct materials and direct manufacturing labor) and a single indirect-cost pool
(manufacturing overhead, allocated using direct manufacturing labor-hours). The indirect
cost-allocation rate of the simple system for 2022 would have been Tk.115 per direct
manufacturing labor-hour. Recently a team with members from product design,
manufacturing, and accounting used an ABC approach to refine its job-costing system. The
two direct-cost categories were retained. The team decided to replace the single indirect-cost
pool with five indirect-cost pools. The cost pools represent five activity areas at the plant,
each with its own supervisor and budget responsibility. Pertinent data are as follows:
Activity Area Cost-Collection Base Cost-Allocation Rate
Material Handling Parts Tk. 0.40
Lathe Work Lathe Unit 0.20
Milling Machine-hour 20.00
Grinding Parts 0.80
Testing Units Tested 15.00
Information-gathering technology has advanced to the point at which the data necessary for
budgeting in these five activity areas are collected automatically. Two representative jobs
processed under the ABC system at the plant in the most recent period had the following
characteristics:
Particulars Job 410 Job 411
Direct material cost per job Tk. 9,700 Tk. 59,900
Direct manufacturing labor cost per job Tk. 750 Tk. 11,250
No. of direct manufacturing labor-hours per job 25 375
Parts per job 500 2,000
Lathe turns per job 20,000 59,250
Machine-hours per job 150 1,050
Units per job (all units are tested) 10 200
Required:
(i) Compute the manufacturing cost per unit for each job under the previous simple job-
costing system.
(ii) Compute the manufacturing cost per unit for each job under the activity-based costing
system.
QUESTION 7 [Marks: 8+12 = 20]
(a) iCover produces bags for carrying laptop computers. iCover sells 1,000,000 units each year
at a price of Tk. 20 per unit and a contribution margin of 40%.To respond to customer
complaints, iCover’s mangers want to modify the production processes to produce higher-
quality products. The current costs of quality are as follows:
Prevention costs Tk. 400,000
Appraisal costs 150,000
Internal failure costs
Rework 325,000

CMA January 2023 Examination, CM121 [Page 6 of 7]

 Scrap 75,000
External failure costs
Product replacements 400,000
Lost sales from customer returns 650,000
The controller and Quality Control manager have determined
that the following additional costs will be required to modify the
production process.
Design changes 125,000
Process engineering 210,000
Required:
(i) Which costs of quality category are managers focusing on? Why?
(ii) If the improvements result in a 55% decrease in product repair costs and a 70%
decrease in lost sales from customer returns, what is the impact on the overall COQ
and the company’s operating income? What should iCover do? Explain.
(iii) Calculate prevention, appraisal, internal failure, and external failure costs as a
percentage of total quality costs and as a percentage of sales before and after the
change in the production process.
(b) TSN Manufacturing, Inc., plans to develop a new industrial-powered vacuum cleaner for
household use that runs exclusively on rechargeable batteries. The product will take 6
months to design and test. The company expects the vacuum sweeper to sell 12,000 units
during the first 6 months of sales; 24,000 units per year over the following 2 years; and
10,000 units over the final 6 months of the product’s life cycle. The company expects the
following costs:
Period Cost Total Fixed Cost Variable Cost
for the Period per Unit
Months 0–6 Design costs Tk. 600,000
Months 7–12 Production Tk. 1600,000 Tk. 100 per unit
Marketing Tk. 1200,000
Distribution Tk. 250,000 Tk. 12 per unit
Months 13–36 Production Tk. 6000,000 Tk. 80 per unit
Marketing Tk. 2800,000
Distribution Tk. 800,000 Tk. 10 per unit
Months 37–42 Production Tk. 1000,000 Tk. 75 per unit
Marketing Tk. 550,000
Distribution Tk. 150,000 Tk. 9 per unit
Ignore the time value of money.
Required:
(i) If TSN prices the sweepers at Tk. 400 each, how much operating income will the
company make over the product’s life cycle? What is the operating income per unit?
(ii) Excluding the initial product design costs, what is the operating income in each of the
three sales phases of the product’s life cycle, assuming the price stays at Tk. 400?
(iii) How would you explain the change in budgeted operating income over the product’s life
cycle? What other factors does the company need to consider before developing the
new vacuum sweeper?
(iv) TSN is concerned about the operating income it will report in the first sales phase. It is
considering pricing the vacuum sweeper at Tk. 450 for the first 6 months and
decreasing the price to Tk. 400 thereafter. With this pricing strategy, TSN expects to
sell 10,000 units instead of 12,000 units in the first 6 months, and the same number of
units for the remaining life cycle. Assuming the same cost structure given in the
problem, which pricing strategy would you recommend? Explain.

END OF SECTION B

CMA January 2023 Examination, CM121 [Page 7 of 7]