CMA Foundation · Fundamentals of Financial and Cost Accounting

Statement of Cost and Profit (Cost Sheet): formula sheet

Full chapter guide

Key formulas

Direct materials consumed: Opening stock of raw materials + Purchases + Carriage inwards − Closing stock of raw materials; Carriage inwards is part of material cost. Deduct purchase returns if given.
Prime cost: Direct materials consumed + Direct labour + Direct expenses; Only direct items go here. Indirect items go to overheads.
Factory cost: Prime cost + Factory overheads + Opening WIP − Closing WIP; Also called works cost or manufacturing cost.
Cost of production: Factory cost + Administration overheads; Adjust for scrap or by-product sales value if given.
Cost of goods sold: Cost of production + Opening finished goods − Closing finished goods; For a trader-type question with no stock data, it equals cost of production.
Cost of sales: Cost of goods sold + Selling and distribution overheads; This is the total cost before profit.
Profit: Sales − Cost of sales; If profit is a percentage of cost, sales = cost of sales × (100 + %) ÷ 100. If it is a percentage of sales, sales = cost of sales × 100 ÷ (100 − %).
Cost per unit: Total cost ÷ Units produced (or sold); Use units produced for cost of production and units sold for cost of sales.
Prime Cost: Prime Cost = Direct Material + Direct Labour + Direct Expenses; Direct expenses are also called chargeable expenses.
Factory Cost (Works Cost): Factory Cost = Prime Cost + Factory Overhead; Adjust for opening and closing work-in-progress when given.
Cost of Production: Cost of Production = Factory Cost + Office and Administration Overhead; Adjust for opening and closing finished goods after this stage to get Cost of Goods Sold.
Cost of Goods Sold: Cost of Goods Sold = Opening Finished Goods + Cost of Production − Closing Finished Goods; If there is no change in finished goods stock, Cost of Goods Sold equals Cost of Production.
Cost of Sales: Cost of Sales = Cost of Goods Sold + Selling and Distribution Overhead; Selling price = Cost of Sales + Profit. With no finished goods stock adjustment, this is Cost of Production + Selling and Distribution Overhead.
Overhead: Overheads = Indirect Material + Indirect Labour + Indirect Expenses; Group them as factory, office, and selling and distribution.
Items excluded: Exclude: interest, tax, dividend, donation, reserves, losses on asset sale, goodwill written off; These are financial or appropriation items, not costs of production or sale.
Direct material consumed: Opening stock + Purchases + Carriage inward − Closing stock; Deduct returns and trade discounts from purchases. Do not add carriage outward here.
Prime cost: Direct materials + Direct wages + Direct expenses; Direct expenses are expenses traceable to the product, such as hire of a special tool for a job.
Works cost: Prime cost + Factory overheads ± Adjustment for opening and closing work-in-progress; Add opening WIP and deduct closing WIP.
Cost of production: Works cost + Administration overheads; Adjust for scrap or normal waste value if given. Adding opening finished goods and deducting closing finished goods gives cost of goods sold.
Cost of sales: Cost of goods sold + Selling and distribution overheads; Profit is added to this to get sales.
Cost per unit: Cost total ÷ Number of units; Use units produced for production costs and units sold for cost of sales.
Selling price with profit on cost: Cost × (100 + p) ÷ 100; For 25% on cost, price is 1.25 times cost.
Selling price with profit on sales: Cost × 100 ÷ (100 − p); For 20% on sales, price is cost ÷ 0.8.
Converting profit on sales to profit on cost: Profit on cost % = p × 100 ÷ (100 − p), where p is profit on sales %; 20% on sales equals 25% on cost. 25% on sales equals 33⅓% on cost.

Quick revision

Prime cost = direct materials + direct labour + direct expenses.
Factory cost = prime cost + factory overheads + opening work-in-progress − closing work-in-progress.
Cost of production = factory cost + administration overheads. Make the work-in-progress adjustments at the factory cost stage, deduct the sale value of normal scrap as per the scrap rule, and keep abnormal loss out of cost of production.
Cost of goods sold = cost of production + opening finished goods − closing finished goods.
Cost of sales = cost of goods sold + selling and distribution overheads.
Sales = cost of sales + profit.
Materials consumed = opening stock + purchases (net of returns, plus carriage inwards and other purchase expenses) − closing stock.
Profit on cost and profit on sales are different bases. Read the question carefully before you use either.
Sale value of normal scrap is deducted from the cost of the job or process (or from factory overheads if the scrap is of a general nature). Treat scrap as other income only when the question directs it. Normal loss is absorbed in cost.
Abnormal loss is not included in the cost of production. It is valued at cost and written off to the costing profit and loss account.
Items of finance and appropriation, such as interest on loans, income tax and dividend, are not part of the cost sheet.
For a tender, estimate cost per unit from past data, adjust for expected changes, then add the required profit.
With no negative marking, answer every question. Eliminate options that ignore stock adjustments first.

Common mistakes

Putting factory overheads into prime cost. Fix: Prime cost has only direct materials, direct labour and direct expenses. All indirect factory items go after prime cost.
Adding closing stock instead of deducting it. Fix: Opening stock is added and closing stock is deducted. Closing stock is what was not used or sold, so it is not part of this period's cost.
Treating carriage inward as a distribution cost. Fix: Carriage inward brings materials to the factory, so it adds to material cost. Carriage outward is distribution overhead.
Including interest on loan or income tax in the cost sheet. Fix: They are financial or appropriation items. Exclude them from the cost sheet.
Treating profit on sales as profit on cost Fix: Underline the base in the question. If it says on sales, divide cost by (100 − p) ÷ 100.
Dividing cost of sales by units produced Fix: Production costs use units produced. Cost of sales uses units sold. Check closing stock before dividing.

Exam tips

Know the order of the subtotals by heart: prime cost, factory cost, cost of production, cost of goods sold, cost of sales. Many MCQs just test this order.
Scan every list for non-cost items such as interest, tax and dividends. They are common traps in the options.
Check whether profit is on cost or on sales before you calculate the selling price.
With no negative marking, always attempt every question. If short of time, eliminate options that include or exclude an obvious item and guess among the rest.
Check whether the question asks for per-unit cost and which unit count to use: produced or sold.
Questions often ask which item is excluded. Scan for interest, tax, dividend, donation and reserve transfers first.
Do not rely on the expense name alone. Check where it is incurred before choosing the overhead group.
If the question gives opening and closing stock, adjust at the right stage: work-in-progress at Factory Cost, and finished goods after Cost of Production to get Cost of Goods Sold.