CMA SEPTEMBER 2024 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 not charged to work-in-process in normal costing?
(a) Actual direct materials
(b) Actual indirect materials
(c) Actual direct labor
(d) Actual indirect labor
(e) Actual manufacturing overhead
(ii) Total costs of producing 300 units and 450 units of a product are Tk. 10,000 and Tk. 13,750
respectively. What is the total fixed cost?
(a) Tk. 3,333
(b) Tk. 3,056
(c) Tk. 2,500
(d) Tk. 2,222
(e) Tk. 4,583
(iii) Which of the following is an internal failure cost in quality costing?
(a) Quality training
(b) Inspection
(c) Reinspection
(d) Lost sales
(e) Warranty
(iv) The product cost under absorption costing does not include which of the following?
(a) Direct materials
(b) Direct labor
(c) Variable manufacturing overhead
(d) Fixed manufacturing overhead
(e) Variable selling and administrative overhead
(v) In ABC system, the allocation basis used for applying costs to products is called:
(a) Cost pool
(b) Cost applicator
(c) Cost driver
(d) Cost absorber
(e) Cost object
(vi) Which of the following best defines cost accounting?
(a) The process of recording all financial transactions of a business
(b) The method of tracking and managing the expenses of a business
(c) The systematic recording and analysis of costs associated with a product or service
(d) The evaluation of a company's financial health
(e) The preparation of financial statements for external users

CMA September 2024 Examination, CM121 [Page 2 of 8]

(vii) If direct material cost is Tk. 5500 and prime cost is Tk. 25000, then direct manufacturing
labor would be:
(a) Tk. 19,500
(b) Tk. 30,500
(c) Tk. 45,500
(d) Tk. 22,500
(e) Tk. 21,500
(viii) Under Gantts task and bonus plan no bonus is payable to a worker if his efficiency is less
than:
(a) 50%
(b) 60%
(c) 85%
(d) 100%
(e) 120%
(ix) In Contract Account, the work in progress consists of:
(a) Cost of work certified
(b) Cost of work uncertified
(c) Cost of work certified and uncertified
(d) Cash received on work certified and cost of work certified
(e) Contract value
(x) Costs which are considered as expenses in accounting period are also known as:
(a) Inventory costs
(b) Period costs
(c) Timed costs
(d) Labor overheads
(e) Product costs

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) Job order costing is typically used in industries where products are homogeneous and
produced in large quantities.
(b) Sunk costs should be considered in decision-making since they represent actual
expenditures.
(c) Activity-based costing (ABC) assigns overhead costs to products based on the activities
they require.
(d) Variances from standard costs are always investigated regardless of their size.
(e) Appraisal costs are only incurred after defects have been found in the finished products.

CMA September 2024 Examination, CM121 [Page 3 of 8]

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
(1) Direct cost (a) Direct labor plus manufacturing overhead
(2) Conversion cost (b) Direct materials plus direct labor
(3) Variable cost (c) Total manufacturing cost
(4) Sunk cost (d) Traceable with the cost object
(5) Opportunity cost (e) Cost of the best alternative
(f) Cost of next best alternative
(g) Fixed per unit and variable in total
(h) Variable per unit and fixed in total
(i) Not invested in business
(j) Not recovered by the business

END OF SECTION A

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 [6+7+7 = 20 MARKS]

(a) TSN Group Ltd. acquired its factory building about 10 years ago. For several years, the
company has rented out a small annex attached to the rear of the building. The company has
received a rental income of Tk. 30,000 per year on this space. The renter’s lease will expire
soon, and rather than renewing the lease, the company has decided to use the space itself to
manufacture a new product.
Direct materials cost for the new product will total Tk. 80 per unit. To have a place to store
finished units of product, the company will rent a small warehouse nearby. The rental cost
will be Tk. 500 per month. In addition, the company must rent equipment for use in producing
the new product; the rental cost will be Tk. 4,000 per month. Workers will be hired to
manufacture the new product, with direct labor cost amounting to Tk. 60 per unit. The space
in the annex will continue to be depreciated on a straight-line basis, as in prior years. This
depreciation is Tk. 8,000 per year.
Advertising costs for the new product will total Tk. 50,000 per year. A supervisor will be hired
to oversee production; her salary will be Tk. 1,500 per month. Electricity for operating
machines will be Tk. 1.20 per unit. Costs of shipping the new product to customers will be
Tk. 9 per unit.
To provide funds to purchase materials, meet payrolls, and so forth, the company will have to
liquidate some temporary investments. These investments are presently yielding a return of
about Tk. 3,000 per year.

CMA September 2024 Examination, CM121 [Page 4 of 8]

 Required:
Prepare an answer sheet with the following column headings:
Name of Variable Fixed Product Cost Period(Selling Opportunity Sunk
the Cost Cost Cost Direct Direct Manufacturing and Cost Cost
Materials Labor Overhead Administrative
Cost

List the different costs associated with the new product decision down the extreme left
column(under Name of the Cost). Then place an X under each heading that helps to
describe the type of cost involved. There may be X’ s under several column headings for a
single cost. (For example, a cost may be a fixed cost, a period cost, and a sunk cost; you
would place an X under each of these column headings opposite the cost.)

(b) Taranagar Company manufactures only one product that is available in both a Deluxe model
and a Regular model. The company has manufactured the Regular model for years and the
Deluxe model was recently introduced. The company is concerned about the accuracy of its
costing system because profits are declining since the Deluxe model was introduced.
Indirect production costs are assigned to the products using direct labor hours. For the
current year, the company estimates Tk. 2,000,000 of indirect production costs and 40,000
direct labor hours. They expect to produce 5,000 units of the Deluxe model and 40,000 units
of the Regular model. The Deluxe model requires 1.6 hours of direct labor time per unit and
the Regular model requires 0.8 hours. Other costs are as follows:
Costs Deluxe Model Regular Model
Direct materials Tk. 150 Tk. 112
Direct labor Tk. 16 Tk. 8
Assume the company's indirect production costs can be traced to four activities with the
following cost drivers:
Activity (Cost Driver) Costs
Purchase orders (number of purchase orders) Tk. 84,000
Rework orders (number of rework orders) Tk. 216,000
Product testing (number of tests) Tk. 450,000
Machining (number of machine hours) Tk. 1,250,000

Cost Drivers Deluxe Model Regular Model

Number of purchase orders 400 600
Number of rework orders 200 600
Number of tests 4,000 6,000
Number of machine hours 20,000 30,000
Required:
(i) Assume direct labor hours are the only cost-allocation base. What is the cost to
manufacture one unit of each model?
(ii) Assume the activity-based costing method is used. What is the cost to manufacture one
unit of each model?
(c) In response to intensive foreign competition, the management of TSN Company has
attempted over the past year to improve the quality of its products. A statistical process
control system has been installed and other steps have been taken to decrease the amount
of warranty and other field costs, which have been trending upward over the past several
years. Costs relating to quality and quality control over the last two years are given below:
Costs (in thousands)
Last Year This Year
Inspection . . . . . . . . . . . . . . . . . . . . . Tk. 750 Tk. 900
Quality engineering . . . . . . . . . . . . . . Tk. 420 Tk. 570
Depreciation of test equipment . . . . Tk. 210 Tk. 240
Rework labor . . . . . . . . . . . . . . . . . . . Tk. 1,050 Tk. 1,500
Statistical process control . . . . . . . . Tk. 0 Tk. 180
Cost of field servicing . . . . . . . . . . . . Tk. 1,200 Tk. 900
Supplies used in testing . . . . . . . . . . Tk. 30 Tk. 60

CMA September 2024 Examination, CM121 [Page 5 of 8]

 Systems development . . . . . . . . . . . Tk. 480 Tk. 750
Warranty repairs . . . . . . . . . . . . . . . . Tk. 3,600 Tk. 1,050
Net cost of scrap . . . . . . . . . . . . . . . Tk. 630 Tk. 1,125
Product testing . . . . . . . . . . . . . . . . . Tk. 810 Tk. 1,200
Product recalls . . . . . . . . . . . . . . . . . Tk. 2,100 Tk. 750
Disposal of defective products . . . . . Tk. 720 Tk. 975
Sales have been flat over the past few years, at Tk. 75,000,000 per year. A great deal of
money has been spent in the effort to upgrade quality, and management is anxious to see
whether or not the effort has been effective.
Required:
(i) Prepare a quality cost report that contains data for both this year and last year. Carry
percentage computations to two decimal places.
(ii) Prepare a written evaluation to accompany the reports you have prepared in (i) above.
This evaluation should discuss the distribution of quality costs in the company, changes
in this distribution that you see taking place, the reasons for changes in costs in the
various categories, and any other information that would be of value to management.

QUESTION 5 [6 + 7 + 7 = 20 MARKS]
(a) Annual requirement of a particular item of inventory is 10,000 units. Inventory carrying cost
per unit per year is 20% and ordering cost is Tk. 40 per order. The price quoted by the
supplier is Tk. 4/unit. However, the supplier is ready to give a discount of 5% for orders of
1,500 units or more. Is it worthwhile to avail of the discount offer?
(b) Tierney Company uses labor standards in manufacturing its products, Based upon past
experience, the company considers the effect of an 80% learning curve when developing
standards for direct labor costs.
The company is planning the production of an automatic electrical timing device requiring the
assembly of purchased components. Production is planned in lots of five units each. A
steady-state production phase with no further increases in labor productivity is expected after
the eighth lot. The first production lot of 5 units required 90 hours of direct labor time at a
standard rate of Tk. 9 per hour.
Required:
(i) Compute the standard amount the company should establish for the total direct labor
cost required for the production of the first 8 lots.
(ii) Discuss the factors that should be considered in establishing the direct labor standards
for each unit of output produced beyond the first 8 lots.
(c) In a manufacturing unit overhead was recovered at a predetermined rate of Tk. 20 per labor-
hour. The total factory overhead incurred and the labor-hours actually worked were Tk.
45,00,000 and 2,00,000 labor hours respectively. During this period 30,000 units were sold.
At the end of the period 5,000 units were held in stock while there was no opening stock of
finished goods. Similarly, though there was no stock of uncompleted units at the beginning of
the period, at the end of the period there were 10,000 un completed units which may be
reckoned at 50% complete.
On analyzing the reasons, it was found that 60% of the unabsorbed overheads were due to
defective planning and rest were attributable to increase in overhead costs.
Required: How would unabsorbed overheads be treated in cost accounts?
QUESTION 6 [4 + 8 + 8 = 20 MARKS]
(a) Why might an advertising agency use job costing for an advertising campaign by PepsiCo,
whereas a bank might use process costing to determine the cost of checking account
deposits?
(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 2024,
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

CMA September 2024 Examination, CM121 [Page 6 of 8]

 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.
(c) Collegiate Corn Hole is a small business that Monir developed while in college. He began
building wooden corn hole game sets for friends, hand painted with college colors and logos. As
demand grew, he hired some workers and began to manage the operation. Collegiate Corn Hole
maintains two departments: construction and painting. In the construction department, the
games require wood and labor. Collegiate Corn Hole has some employees who have been with
the company for a very long time and others who are new and inexperienced.
Collegiate Corn Hole uses standard costing for the game sets. Monir expects that a typical set
should take 4 hours of labor in the construction department, and the standard wage rate is Tk.
10.00 per hour. An average set uses 24 square feet of wood, allowing for a certain amount of
scrap. Because of the nature of the wood, workers must work around flaws in the materials.
Monir shops around for good deals and expects to pay Tk. 5.00 per square feet.
Monir does not store inventory, and buys the wood as he receives an order.
For the month of September, Monir’s workers produced 60 corn hole sets using 250 hours and
1,500 square feet of wood. Monir bought wood for Tk. 7,350 (and used the entire quantity) and
incurred labor costs of Tk. 2,375.
Required:
(i) For the construction department, calculate the price and efficiency variances for the
wood and the price and efficiency variances for direct manufacturing labor.
(ii) Record the journal entries for the variances incurred.
(iii) Discuss logical explanations for the combination of variances that the construction
department of Collegiate Corn Hole experienced.
QUESTION 7 [4 + 8 + 8 = 20 MARKS]
(a) “Managers should consider only additional revenues and separable costs when making
decisions about selling at splitoff or processing further.” Do you agree? Explain.
(b) In a chemical plant four different products AB, BC, CD and DD emerge from the input of
crude oil. Product AB can be sold immediately, but the remaining three products require
further processing before they can be marketed.
In a month, 40000 litres of crude oil were procured at a cost of Tk. 30 per litre and
processed at a cost of Tk. 3 lakhs. The details of output obtained, further processing cost,
selling price per unit etc. are given below.

Product Output kg Further processing cost (Tk.) Selling price at the point of sale
AB 8,000 kg Tk. 45/kg
BC 10,000 kg 80,000 Tk. 60/kg
CD 12,000 kg 120,000 Tk. 70/kg
DD 5000 litres 60,000 Tk. 80/litre

CMA September 2024 Examination, CM121 [Page 7 of 8]

 Required:
(i) Prepare statement showing apportionment of joint cost on suitable basis and product-
wise profitability statement.
(ii) If the company finds a market for CD at Tk. 63/kg without further processing, will it be
advisable to accept it?
(c) A Club runs a library for its members. As part of club policy, an annual subsidy of upto Tk. 5
per member including cost of books may be given from the general funds of the club. The
management of the club has provided the following figures for its library department.
Number of Club members 5000
Number of Library members 1000
Library fee per member per month Tk. 100
Fine for late return of books Tk. 1 per book per day
Average No. of books returned later per month 500
Average No. of days each book is returned late 5 days
Number of available old books 50,000 books
Cost of new books Tk. 300 per book
Number of books purchased per year 1,200 books
Cost of maintenance per old book per year Tk. 10
Staff details No. Per Employee Salary per
month (Tk. )
Librarian 01 10,000
Assistant Librarian 03 7,000
Clerk 01 4,000
Required:
You are required to calculate:
(i) the cost of maintaining the library per year excluding the cost of new books;
(ii) the cost incurred per member per month on the library excluding cost of new books;
and
(iii) the net income from the library per year.
(iv) If the club follows a policy that all new books must be purchased out of library revenue
(a) What is the maximum number of books that can be purchased per year (b) How
many excess books are being purchased by the library per year?
Also, comment on the subsidy policy of the club.

END OF SECTION B

CMA September 2024 Examination, CM121 [Page 8 of 8]