CA Intermediate · Cost and Management Accounting

Cost Sheet: formula sheet

Full chapter guide

Key formulas

Prime cost: Prime cost = Direct material + Direct labour + Direct expenses; All direct costs. Overheads are not part of it.
Cost per unit (variable): Variable cost per unit = Total variable cost ÷ Units of activity; Stays constant per unit within the relevant range.
Fixed cost per unit: Fixed cost per unit = Total fixed cost ÷ Units of activity; Falls as activity rises; total stays constant.
Semi-variable cost: Total cost = Fixed element + (Variable rate × Activity); Use two activity levels to split: variable rate = change in cost ÷ change in activity.
Classification by function: Production, Administration, Selling & Distribution, R&D; Production cost is usually treated as product cost; the others as period-wise overheads in the cost sheet.
Direct materials consumed: Opening stock + Purchases + Carriage inwards (and other purchase costs) − Closing stock; Deduct trade discount and subtract returns to suppliers when arriving at purchases. Use materials consumed, not purchases.
Prime cost: Direct materials consumed + Direct labour + Direct expenses; Direct expenses are also called chargeable expenses.
Factory cost (works cost): Prime cost + Factory overheads + Opening WIP − Closing WIP; Deduct the sale value of normal scrap or by-products from material cost or factory overheads (or credit it to costing profit and loss), according to the treatment specified in the question. Abnormal loss is excluded from the cost sheet.
Cost of production: Factory cost + Administration overheads; Cost of production is for goods produced in the period. Divide by units produced to get cost per unit. Handle opening and closing finished goods only in cost of goods sold.
Cost of goods sold: Opening finished goods + Cost of production − Closing finished goods; Skip this line if no finished goods stock is given.
Cost of sales: Cost of goods sold + Selling and distribution overheads; This is the total cost of the goods sold.
Sales: Cost of sales + Profit; If profit is a % of sales, then Sales = Cost of sales ÷ (1 − profit %).
Normal scrap or waste: Sale value of normal scrap is credited once: either to the cost of the related material (prime cost) or to factory overheads/factory cost; If scrap is of a specific job, credit that job. Otherwise credit the general overhead or factory cost. Follow the wording of the question and never deduct the same scrap at both stages.
Abnormal loss: Abnormal loss = [(Total cost − Scrap value of normal loss) ÷ Normal output] × Abnormal units; less scrap realised on the abnormal units; Never included in the cost sheet. Net amount is transferred to the Costing Profit and Loss Account.
Abnormal gain: Value of gain units = [(Total cost − Scrap value of normal loss) ÷ Normal output] × Abnormal gain units. Net gain = Value of gain units − Scrap value of those gain units; Gain units are valued at the normal cost per unit, with normal output as the divisor. Because those units did not become scrap, the scrap income expected on them is not received. So the scrap value of the gain units is set against their value in the scrap (normal loss) account. The balance is the net gain, and it is transferred to the Costing Profit and Loss Account, not to the cost sheet.
Gross factory cost: Prime cost + Factory overheads; This is the total before the WIP adjustment. Do not call it works cost.
Factory cost: Gross factory cost + Opening WIP − Closing WIP (less normal scrap realisation only if the question says to credit it to factory cost); Factory cost and works cost are the same figure. WIP is adjusted only once, at this stage. If normal scrap was already credited to material cost, do not deduct it again here.
Cost of production: Factory cost + Administration overhead; Administration overhead is added after the WIP adjustment. Divide by units produced to get cost per unit.
Cost of goods sold: Cost of production + Opening finished goods − Closing finished goods; Value the closing finished goods at cost of production per unit, not at selling price.
Royalty: Royalty on production → direct expense (prime cost); royalty on sales → selling and distribution overhead; Minimum rent or dead rent is treated as an overhead.
Bad debts: Normal bad debts related to sales → selling and distribution overhead; extraordinary bad debts and bad debts of a financial nature → excluded; Check the wording. Only normal bad debts that arise from sales are a cost. Do not exclude all bad debts.
Excluded items: Interest on capital, interest and finance charges, income-tax, dividend, donations, discount allowed, goodwill written off, losses on sale of assets, transfer to reserves; These are not part of the cost sheet. Abnormal losses are also kept out. Extraordinary or financial bad debts are excluded too. Notional rent or interest is included only when the question asks for it in cost accounts.
Material consumed: Opening stock + Purchases + Carriage inwards − Closing stock; Deduct any returns or sale of material. Include only normal costs of purchase.
Prime cost: Direct material + Direct labour + Direct expenses; Include any chargeable expenses that can be traced to the product.
Factory cost: Prime cost + Factory overheads + Opening WIP − Closing WIP; Also called works cost.
Cost of production: Factory cost + Administration overheads + Opening finished goods − Closing finished goods (as per the question's treatment); Usually, administration overheads are added at this stage. If goods are all sold, no stock adjustment is needed.
Cost of sales: Cost of production + Selling and distribution overheads; Sales = Cost of sales + Profit.
Profit on cost to profit on sales: If profit is x% on cost, profit on sales = x ÷ (100 + x) × 100 %; Example: 25% on cost = 25 ÷ 125 = 20% on sales.
Sales when profit is a % of sales: Sales = Cost of sales ÷ (1 − profit rate); For 20% on sales: Sales = Cost of sales ÷ 0.80.
Cost per unit: Total cost ÷ Units (produced for production cost, sold for cost of sales); Use the right unit base for each stage.
Estimated cost for new level: Variable cost per unit × New units + Fixed cost; Adjust per-unit rates first for any given price or wage change.

Quick revision

Prime cost = direct materials + direct labour + direct expenses.
Factory cost = prime cost + factory overheads (including quality control and research and development costs relating to the process) + opening work-in-progress - closing work-in-progress. Any realisation from scrap or waste is not a separate step. It is adjusted against the relevant material or overhead head.
Cost of production = factory cost + administration overheads relating to production. Abnormal loss is excluded. Treat pre-production costs as part of cost of production only if the question specifically says they are to be absorbed. Other administration overheads are added at the cost of sales stage.
Normal loss is absorbed in the cost of the good output. The sale value of normal scrap is credited by deducting it from the relevant cost, either materials or factory overheads, as the question requires. Only if the question states that the scrap is negligible or is treated as other income, keep it outside the cost sheet. Abnormal loss (net of any scrap or disposal value) is kept out of the cost sheet and charged to the Costing Profit and Loss A/c.
Cost of goods sold = cost of production + opening finished goods - closing finished goods.
Cost of sales = cost of goods sold + administration overheads not related to production + selling and distribution overheads.
Profit = sales - cost of sales, and sales = cost of sales + profit.
Profit on cost of x% means sales = cost × (100 + x) ÷ 100.
Profit on sales of x% means cost = sales × (100 - x) ÷ 100.
Materials consumed = opening stock + purchases + carriage inwards - closing stock.
A by-product's net realisable value may be deducted from the joint cost or treated as other income, as the question specifies.
Items like interest paid, income tax and donations are financial items, not costs, and stay out of the cost sheet.

Common mistakes

Saying fixed cost per unit is constant and variable cost per unit changes. Fix: Fixed: total constant, per unit falls. Variable: total rises, per unit constant. Say 'total' or 'per unit' every time.
Treating all factory costs as indirect and all administration costs as direct. Fix: Function tells where a cost arises. Traceability tells if it links to the cost unit. A machine operator's wages are a factory cost and also direct.
Using purchases instead of materials consumed in prime cost. Fix: Always build a materials consumed working: opening + purchases + carriage inwards − closing.
Including interest, tax, dividends or donations in cost. Fix: Ask whether the item relates to producing or selling the product. Financial and appropriation items are excluded.
Including abnormal loss in the cost sheet. Fix: Remove it and charge it to the Costing Profit and Loss Account. Value it at [(Total cost − Scrap value of normal loss) ÷ Normal output] per unit, less scrap realised. Spread normal loss only over good units.
Adding scrap sale value to sales instead of deducting it from cost. Fix: Treat normal scrap realisation as a reduction of material or factory cost unless the question says otherwise.
Treating profit on sales as profit on cost. Fix: Underline the base. If it is on sales, divide cost by (1 − rate). If it is on cost, multiply cost by (1 + rate).
Using units produced to find cost of sales per unit when units sold differ. Fix: Use units produced for cost of production per unit and units sold for cost of sales per unit. Adjust for the stock of finished goods.

Exam tips

Read the basis of classification in the stem first. Many MCQs give a correct statement under a wrong basis.
In descriptive answers, write item, class and reason. A reason earns the step mark even if the class is debatable.
For behaviour questions, mention the relevant range and the period. Fixed costs are fixed only within these limits.
Practise the high-low split. It is a frequent small numerical in this topic.
Learn one example for each term: cost unit, cost centre, step cost, semi-variable cost. Examiners often ask for examples.
Show a working note for materials consumed and for any item you exclude. Examiners award marks for the treatment, not only the totals.
Learn the sequence of stage names cold. Questions often ask for only one stage, such as factory cost, so you can stop there.
In MCQs, check whether the question asks for a total or a per-unit figure, and which units to use.