CMA SEPTEMBER-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 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) Cost accounting concepts include all the following except ________.
a) planning
b) controlling
c) profit sharing
d) product costing
e) none of these
(ii) Labor turnover is ______.
a) productivity of labor
b) efficiency of the labor
c) change in labor force
d) total cost of the labor
e) effectiveness of the labor
(iii) Bin card is maintained by ________.
a) costing department
b) stores department
c) finance department
d) accounting department
e) production department
(iv) Direct expenses are also called….
a) major expenses
b) chargeable expenses
c) overhead expenses
d) sundry expenses
e) minor expenses

CMA September-2023 Examination, CM121 [Page 2 of 8]

(v) In a joint process of production, product which yields low volume of sales as compared
to total sales of other products is known as
a) Second incremental product
b) First incremental product
c) step down product
d) by-product
e) main product
(vi) Works overhead is Tk. 40,000, total machine hours is 8500 hours and time allowed for
machine setting is 500 hours. What is the machine rate?
a) Tk. 2 per hour
b) Tk. 3 per hour
c) Tk. 4 per hour
d) Tk. 5 per hour
e) Tk. 6 per hour
(vii) If required rate of return is 12% and per unit cost of units purchased is Tk.35, then
relevant opportunity cost of capital will be
a) Tk.6.20
b) Tk.7.20
c) Tk.4.20
d) Tk.5.20
e) Tk. 3.20
(viii) If relevant opportunity cost of capital is Tk.2950 and relevant carrying cost of inventory
is Tk.6700, 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
(ix) Method of revenue allocation, which ranks products included in bundle according to
predetermined criteria of management is known as
a) step down allocation method
b) stand-alone revenue allocation method
c) incremental revenue allocation method
d) revenue mix allocation method
e) none of these
(x) "Calculate Re-order level from the following:
Consumption per week: 100-200 units
Delivery period: 14-28 days"
a) 5600 units
b) 800 units
c) 1400 units
d) 200 units
e) 400 units

CMA September-2023 Examination, CM121 [Page 3 of 8]

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) Cost is a part of expense.
(b) A semi-variable cost is one that has the elements of both fixed and variable cost.
(c) Manufacturing cost is equal to sum of prime cost and conversion cost.
(d) Activity-based costing is more accurate than traditional system.
(e) Target costing is a contemporary cost accounting tool.

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) Expense (a) All indirect expenditures
(2) Direct cost (b) Cost that varies in total and remains constant per unit
(3) Variable cost (c) Cost that varies per unit and remains constant in total
(4) Sunk cost (d) Expired portion of cost
(5) Relevant cost (e) Unexpired portion of cost
(f) Cost that has already been incurred but cannot be
recovered
(g) All cash payments
(h) Cost that only relates to a specific management decision
(i) Traceable with the cost object
(j) Directly varying with time

END OF SECTION A

CMA September-2023 Examination, CM121 [Page 4 of 8]

 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
(a) You have just been hired by TSN Company to fill a new position that was created in
response to rapid growth in sales. It is your responsibility to coordinate shipments of
finished goods from the factory to distribution warehouses located in various parts of
the Bangladesh so that goods will be available as orders are received from customers.
The company is unsure how to classify your annual salary in its cost records. The
company’s cost analyst says that your salary should be classified as a manufacturing
(product) cost; the controller says that it should be classified as a selling expense; and
the president says that it doesn’t matter which way your salary cost is classified.
Required:
(i) Which viewpoint is correct? Why?
(ii) From the point of view of the reported net operating income for the year, is the
president correct in his statement that it doesn’t matter which way your salary
cost is classified? Explain.
(b) A work order for 500 units of a commodity has to pass through four different machines
of which the machines hour rates are
Tk.
No. I 1.25
No. II 3.00
No. III 4.00
No. IV 2.50
The following expenses have been incurred on the work order. Materials Tk. 20,000
and wages Tk. 1,500.
Machine I Worked for 200 hours
Machine II Worked for 300 hours
Machine III Worked for 240 hours
Machine IV Worked for 100 hours
After the work order had been executed, materials worth Tk. 1,000 were returned to
stores.
Office overheads are to be estimated @ 60% of works cost: 10% of the production is
going to be discarded, being unsatisfactory for which 1/2 the amount can be realized
from sale in the junk market. Find out the rate of selling price per unit if 20% profit on
selling price is desired.
(c) Alpha Company’s annual demand for its only product, XT-590, is 10,000 units. Alpha is
currently analyzing possible combinations of relevant carrying cost per unit per year
and relevant ordering cost per purchase order, depending on the company’s choice of
supplier and average levels of inventory. This table presents three possible
combinations of carrying and ordering costs.
Relevant Carrying Cost per Unit per Year Relevant Ordering Cost per Purchase
Order
Tk. 10 Tk. 400
20 200
40 100
Required:
(i) For each of the relevant ordering and carrying-cost alternatives, determine (a)
EOQ and (b) annual relevant total costs.
(ii) How does your answer to requirement i give insight into the impact of changes in
relevant ordering and carrying costs on EOQ and annual relevant total costs?
Explain briefly.

CMA September-2023 Examination, CM121 [Page 5 of 8]

 (iii) Suppose the relevant carrying cost per unit per year was Tk. 20 and the relevant
ordering cost per purchase order was Tk. 200. Suppose further that Alpha
calculates EOQ after incorrectly estimating relevant carrying cost per unit per
year to be Tk. 10 and relevant ordering cost per purchase order to be Tk. 400.
Calculate the actual annual relevant total costs of Alpha’s EOQ decision.
Compare this cost to the annual relevant total costs that Alpha would have
incurred if it had correctly estimated the relevant carrying cost per unit per year
of Tk. 20 and the relevant ordering cost per purchase order of Tk. 200 that you
have already calculated in requirement i. Calculate and comment on the cost of
the prediction error.
[Marks: (5+5+10) = 20]
QUESTION 5
(a) Define contract costing. Distinguish between Job-order costing and contract costing.
(b) Distinguish between job-order costing and process costing with examples.
(c) Global Transport Ltd charges Tk. 900 per ton for its 6 tons truck lorry load from city 'A'
to city 'B'. The charges for the return journey are Tk. 840 per ton. No concession or
reduction in these rates is made for any delivery of goods at intermediate station 'C'. In
January 2023, the truck made 12 outward journeys for city 'B' with full load out of which
2 tones were unloaded twice in the way of city 'C'. The truck carried a load of 8 tons in
its return journey for 5 times but once caught by police and Tk. 12,000 was paid as
fine. For the remaining trips the truck carried full load out of which all the goods on load
were unloaded once at city 'C'. The distance from city 'A' to city 'C' and city 'B' is 140
kms and 300 kms respectively. Annual fixed costs and maintenance charges are Tk.
600,000 and Tk. 120,000 respectively. Running charges spent during January 2023
are Tk. 29,440.
Required:
Find out the cost per absolute ton-kilometer and the profit for January 2023.
[Marks: (4+4+12) = 20]
QUESTION 6
(a) Why are joint costs irrelevant in decision making? Explain with an appropriate
example.
(b) A company manufactures two products: L and M, using the same equipment and
similar processes. An extract of the production data for these products in one period is
shown below:
L M
Quantity produced (units) 5,000 7,000
Direct labor hours per unit 1 2
Machine hours per unit 3 1
Setup in the period 10 40
Orders handled in the period 15 60
Overhead costs: Relating to machine activity, Tk. 220,000; Relating to production run
setup, Tk. 20,000; Relating to handling of orders, Tk. 45,000
Instructions:
Calculate the production overheads to be absorbed by one unit of each of the products
using the following:
(i) A traditional costing approach, using a direct labor hour rate to absorb
overheads.
(ii) An activity-based costing approach, using suitable cost drivers to trace overheads
to products.

CMA September-2023 Examination, CM121 [Page 6 of 8]

(c) Kalatia Company produces a single product. Variable manufacturing overhead is
applied to products on the basis of direct labor-hours. The standard costs for one unit
of product are as follows:

Direct material: 6 ounces at Tk. 50 per ounce Tk. 300

Direct labor: 0.6 hours at Tk. 300 per hour 180
Variable manufacturing overhead: 0.6 hours at Tk. 100 per hour 60
Total standard variable cost per unit Tk. 540
During June, 2,000 units were produced. The costs associated with June’s operations
were as follows:
Material purchased: 18,000 ounces at Tk. 48 per ounce Tk. 864,000
Material used in production: 14,000 ounces —
Direct labor: 1,100 hours at Tk. 315 per hour Tk. 346,500
Variable manufacturing overhead costs incurred Tk. 121,000
Instructions:
Compute the following variances:
(i) Direct material price, quantity, and total variances
(ii) Direct labor rate, efficiency, and total variances
(iii) Variable overhead rate, efficiency, and total variances
[Marks: (5+6+9) = 20]
QUESTION 7
(a) TSN Cosmetics manufactures and sells a variety of makeup and beauty products. The
company has developed its own patented formula for a new anti-aging cream The
company president wants to make sure the product is priced competitively because its
purchase will also likely increase sales of other products. The company anticipates that
it will sell 400,000 units of the product in the first year with the following estimated
costs:

Product design and licensing Tk. 1,700,000

Direct materials 4,000,000
Direct manufacturing labor 1,600,000
Variable manufacturing overhead 400,000
Fixed manufacturing overhead 2,500,000
Fixed marketing 3,000,000
Required:
(i) The company believes that it can successfully sell the product for Tk. 45 a bottle.
The company’s target operating income is 30% of revenue. Calculate the target
full cost of producing the 400,000 units. Does the cost estimate meet the
company’s requirements? Is value engineering needed?
(ii) A component of the direct materials cost requires the nectar of a specific plant in
South America. If the company could eliminate this special ingredient, the
materials cost would decrease by 25%. However, this would require design
changes of Tk. 300,000 to engineer a chemical equivalent of the ingredient. Will
this design change allow the product to meet its target cost?
(iii) The company president does not believe that the formula should be altered for
fear it will tarnish the company’s brand. She prefers that the company become
more efficient in manufacturing the product. If fixed manufacturing costs can be
reduced by Tk. 250,000 and variable direct manufacturing labor costs are
reduced by Tk. 1 per unit, will TSN achieve its target cost?
(iv) Would you recommend the company follow the proposed solution in requirement
ii or requirement iii?

CMA September-2023 Examination, CM121 [Page 7 of 8]

(b) Safe Travel produces car seats for children from newborn to 2 years old. Safe Travel’s
only problem with its car seats was stitching in the straps. The problem can usually be
detected and repaired during an internal inspection. Inspection costs Tk. 5.00 per car
seat, and repairs cost Tk. 1.00 per car seat. All 200,000 car seats were inspected last
year, and 5% were found to have problems with the stitching. Another 1% of the
200,000 car seats had problems with the stitching, but the internal inspection did not
discover them. Defective units that were sold and shipped to customers are shipped
back to Safe Travel and repaired. Shipping costs are Tk. 8.00 per car seat, and repair
costs are Tk. 1.00 per car seat. Negative publicity will result in a loss of future
contribution margin of Tk. 100 for each external failure.
Required:
(i) Identify total costs of quality by category (appraisal, internal failure, and external
failure).
(ii) Safe Travel is concerned with the high up-front cost of inspecting all 200,000
units. It is considering an alternative internal inspection plan that will cost only Tk.
3.00 per car seat inspected. During the internal inspection, the alternative
technique will detect only 3.5% of the 200,000 car seats that have stitching
problems. The other 2.5% will be detected after the car seats are sold and
shipped. What are the total costs of quality for the alternative technique?
(iii) What factors other than cost should Safe Travel consider before changing
inspection techniques?
[Marks: (11+9) = 20]

END OF SECTION B

CMA September-2023 Examination, CM121 [Page 8 of 8]