Cost and Management Accounting · Cost Sheet

Cost Sheet Problems: Profit, Price and Estimated Cost

Updated 4 October 2026 · Fact-checked

A cost sheet problem asks you to build the cost statement from given data, then use it to find profit, selling price, cost per unit or a tender price. Work stage by stage: prime cost, factory cost, cost of production, cost of sales. Then add profit as a percentage of cost or sales.

Understand Cost Sheet Problems: Profit, Price and Estimated Cost

A cost sheet is a statement that shows the total cost and the cost per unit, built up in stages. Once you know the format, every problem is the same task: slot the data into the right stage, then answer what the question asks.

The stages are: prime cost (direct material, direct labour, direct expenses), factory cost (prime cost plus factory overheads, adjusted for work-in-progress), cost of production (factory cost plus administration overheads, adjusted for finished goods stock) and cost of sales (cost of production plus selling and distribution overheads). Profit added to cost of sales gives the sales value.

There are three common problem types. First, a historic cost sheet: all figures are given and you find profit or selling price. Second, a price-fixing question: you are told the profit as a percentage and must find the price. Third, an estimate or tender question: last period's cost is given, and you project it to a new quantity or new price levels.

For estimates, you must split costs by behaviour. Variable costs change with units. Fixed costs stay the same in total (within the relevant range). So you work out the variable cost per unit from past data, multiply by new units, and keep fixed costs as a lump sum unless the question says they change.

Profit can be given on cost or on sales. Profit of 20% on sales means cost is 80% of sales. This is equivalent to a profit of 25% on cost, because 20 ÷ 80 = 25%. Mixing these up is the most common way to lose marks.

Key rules to remember

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.

How to solve Cost Sheet Problems: Profit, Price and Estimated Cost questions

Use this method for any cost sheet question on profit, price or estimates. It keeps your working in the order examiners give marks.

1Read the last line of the question first. Note whether it wants profit, selling price, cost per unit, tender price or all of these.
2List the data under heads: material, labour, direct expenses, factory overheads, administration, selling and distribution, stock adjustments, units.
3Compute material consumed, then prime cost. Write each figure on its own line.
4Add factory overheads to reach factory cost. Calculate any overhead given as a percentage on the correct base (for example, on direct wages or on prime cost).
5Add administration overheads to get cost of production, then selling and distribution to get cost of sales. Adjust for opening and closing stocks where given.
6For estimates, first split costs into variable and fixed. Revise per-unit rates for given price changes, then multiply by the new units and add fixed costs.
7Add profit. Check carefully whether the profit is on cost or on sales, then compute sales value and selling price per unit.
8Do a quick check: profit ÷ the right base should equal the given percentage.

Quickest way: Fast route for MCQs and for step marks in written answers

When to use it: Use this in the exam when time is short, for both the 30 marks of MCQs and the 70 marks of written answers.

For MCQs, convert the profit rate first. Profit 20% on sales means Sales = Cost × 100 ÷ 80, which is 1.25 × Cost. Then eliminate options that do not fit this relation.
For per-unit MCQs, check whether the question asks for cost of production per unit or cost of sales per unit. Options are often built on the wrong base.
In a written answer, draw the cost sheet with columns for Total (₹) and Per unit (₹). Show each sub-total (prime cost, factory cost, cost of production, cost of sales) clearly.
Show percentage-based overheads as a one-line working, for example: Factory overhead = 80% × ₹1,50,000 = ₹1,20,000.
For estimates, first write a small working note of variable cost per unit and fixed cost. Then prepare the estimated cost sheet.
State assumptions in a line, for example: fixed costs remain unchanged. Step marks follow the stated assumptions.

Common mistakes in Cost Sheet Problems: Profit, Price and Estimated Cost

Treating profit on sales as profit on cost.
Students add 20% to cost without reading the base in the question.
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.
Students divide every stage by the same unit figure.
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.
Treating fixed cost as a per-unit rate in an estimate.
Students scale the whole old cost by the ratio of new to old units.
Fix: Split costs into variable and fixed. Scale only the variable part, and keep fixed cost as a lump sum unless told otherwise.
Applying a percentage overhead on the wrong base.
Students apply 'x% of prime cost' or 'x% of factory cost' on whichever sub-total is nearest.
Fix: Read the base word for word. Compute that sub-total first, then apply the percentage.
Missing the stock adjustments for WIP and finished goods.
Opening and closing stock figures are buried in the data.
Fix: Run through the data list once for 'opening' and 'closing' words. Adjust at factory cost for WIP and at cost of production for finished goods.
Revising rates incorrectly for price changes, for example raising the total cost by 10% when only material price rises.
Students apply the change to the whole cost instead of the affected element.
Fix: Apply the change only to the element named, per unit, and then multiply by the new quantity.

Worked examples

Example 1

A manufacturer provides the following for a year. Opening raw material ₹40,000; purchases ₹3,60,000; closing raw material ₹50,000; direct wages ₹1,50,000; direct expenses ₹30,000. Factory overhead is 80% of direct wages. Administration overhead is 10% of factory cost. Selling and distribution overhead is ₹35,000. There was no opening or closing stock of WIP or finished goods. All 7,500 units produced were sold. Prepare the cost sheet, and find the profit and selling price per unit if the profit is 20% on sales.

Show the solution

Material consumed = 40,000 + 3,60,000 − 50,000 = ₹3,50,000.
Prime cost = 3,50,000 + 1,50,000 + 30,000 = ₹5,30,000.
Factory overhead = 80% × 1,50,000 = ₹1,20,000. Factory cost = 5,30,000 + 1,20,000 = ₹6,50,000.
Administration overhead = 10% × 6,50,000 = ₹65,000. Cost of production = 6,50,000 + 65,000 = ₹7,15,000.
Cost of sales = 7,15,000 + 35,000 = ₹7,50,000. Cost of sales per unit = 7,50,000 ÷ 7,500 = ₹100.
Profit is 20% on sales, so cost is 80% of sales. Sales = 7,50,000 ÷ 0.80 = ₹9,37,500.
Profit = 9,37,500 − 7,50,000 = ₹1,87,500. Check: 20% × 9,37,500 = ₹1,87,500.
Selling price per unit = 9,37,500 ÷ 7,500 = ₹125.

Answer: Prime cost ₹5,30,000; factory cost ₹6,50,000; cost of production ₹7,15,000; cost of sales ₹7,50,000 (₹100 per unit); profit ₹1,87,500; sales ₹9,37,500; selling price ₹125 per unit.

Example 2

For 10,000 units last year, costs were: direct material ₹4,00,000; direct wages ₹2,00,000; factory overhead ₹1,50,000 (₹1,00,000 variable and ₹50,000 fixed); administration overhead ₹60,000 (fixed); selling and distribution overhead ₹20,000 (variable). Next year, a tender is invited for 12,000 units. Material price per unit will rise by 10% and wage rate per unit by 5%. Other rates stay the same and fixed costs do not change. Find the tender price in total and per unit if the profit required is 20% on cost.

Show the solution

Material per unit last year = 4,00,000 ÷ 10,000 = ₹40. New rate = 40 × 1.10 = ₹44. For 12,000 units = ₹5,28,000.
Wages per unit last year = ₹20. New rate = 20 × 1.05 = ₹21. For 12,000 units = ₹2,52,000.
Prime cost = 5,28,000 + 2,52,000 = ₹7,80,000.
Variable factory overhead per unit = 1,00,000 ÷ 10,000 = ₹10. For 12,000 units = ₹1,20,000. Add fixed ₹50,000. Factory overhead = ₹1,70,000.
Factory cost = 7,80,000 + 1,70,000 = ₹9,50,000. Add fixed administration overhead ₹60,000. Cost of production = ₹10,10,000.
Selling and distribution per unit = 20,000 ÷ 10,000 = ₹2. For 12,000 units = ₹24,000. Cost of sales = 10,10,000 + 24,000 = ₹10,34,000.
Profit at 20% on cost = 20% × 10,34,000 = ₹2,06,800.
Tender price = 10,34,000 + 2,06,800 = ₹12,40,800. Per unit = 12,40,800 ÷ 12,000 = ₹103.40.

Answer: Estimated cost of sales is ₹10,34,000. Tender price is ₹12,40,800, which is ₹103.40 per unit.

Exam tips

Circle the profit base in the question (on cost or on sales) before you start the working. This one word decides the final answer.
Present the answer as a proper cost sheet with sub-totals and a per-unit column, even if the question only asks for the price. The format earns step marks.
For tender and estimate questions, always show the variable and fixed split as a separate working note.
Past RTP and MTP questions often add one twist, such as a stock adjustment, a percentage-of-cost overhead or a price change. Read the data twice to find it.
In MCQs, test each option for internal consistency, for example that profit divided by sales equals the given rate. This often saves time.

Practice questions from Cost Sheet

Cost Sheet Problems: Profit, Price and Estimated Cost in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Cost Sheet Problems: Profit, Price and Estimated Cost: frequently asked questions

How do I find selling price when profit is a percentage of sales?

Find cost of sales first. Then divide it by (1 − profit rate). For 20% profit on sales, sales = cost of sales ÷ 0.80. Divide this by units sold to get the price per unit.

What is the difference between profit on cost and profit on sales?

Profit on cost uses cost of sales as the base. Profit on sales uses the selling price as the base. A profit of 25% on cost equals 20% on sales, so the two give the same selling price only when converted correctly.

How do I prepare an estimated cost sheet for a tender price?

Take last period's costs per unit. Revise them for price changes given in the question. Multiply variable costs by the new units and keep fixed costs as a lump sum. Prepare the cost sheet, then add the required profit.

Do I need to show per-unit figures in every cost sheet answer?

Show them whenever the question asks for cost per unit or a selling price per unit. Even otherwise, a per-unit column helps check your work and is generally good presentation.