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Fundamentals of Financial and Cost Accounting · Statement of Cost and Profit (Cost Sheet)

Cost Sheet Problems: Profit, Selling Price and Tender Quotations

Updated 10 October 2026 · Fact-checked

A cost sheet problem asks you to build total cost step by step, divide by units for cost per unit, then add profit to reach the selling price. Check whether profit is on cost or on sales. For a tender, estimate the cost of the new job first, then add profit.

Understand Cost Sheet Problems: Profit, Price and Tender Quotations

A cost sheet lists every cost of a product in a fixed order: prime cost, works cost, cost of production, cost of goods sold and cost of sales. Profit is added at the end to get sales. Problems on this topic ask you to run that ladder, then use it to find cost per unit, profit or selling price.

Cost per unit is a cost total divided by units. Use the right total and the right units. Cost of production is divided by units produced. Cost of sales is divided by units sold.

Profit can be given in two ways. Profit on cost means profit is a percentage of cost, so selling price = cost × (100 + p) ÷ 100. Profit on sales means profit is a percentage of the selling price, so selling price = cost × 100 ÷ (100 − p). The two give different answers. Read the wording twice.

A tender price is the price you quote for a future job. You do not have the actual costs yet, so you prepare an estimated cost sheet. You take past cost per unit, adjust it for expected changes in material price, wage rate or volume, add overheads and then add profit. Overheads that are a percentage of another cost must be recomputed on the new figure.

Key formulas to remember

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.

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

Use the same ladder for every question. It keeps you from missing an item or mixing units.

  1. 1Read the question and note what is asked: total cost, cost per unit, profit, selling price or tender price.
  2. 2Note units produced, units sold and any opening or closing stock of materials, work-in-progress and finished goods.
  3. 3Compute material consumed, then prime cost.
  4. 4Add factory overheads for works cost, then administration overheads for cost of production. Adjust for WIP and scrap if given.
  5. 5Divide cost of production by units produced to get cost per unit. Value closing finished goods at this rate and find cost of goods sold.
  6. 6Add selling and distribution overheads to get cost of sales.
  7. 7Add profit as asked. Decide whether it is on cost or on sales, and use the matching formula.
  8. 8For a tender, rework each item using the new price, rate and units, then add overheads and profit on the new total. Check the answer is more than total cost.

Quickest way: Rate-per-unit and multiplier shortcut

When to use it: Use when the question gives a past cost per unit and asks for a new cost, selling price or tender price. It also works when only the final price is needed.

  1. Convert each cost to a per-unit rate: material per unit, wages per unit.
  2. Change each rate for the stated increase, then multiply by the new units.
  3. Work out percentage overheads on the new base, such as 60% of the new wages.
  4. Add all items to get total cost.
  5. For profit on cost, multiply by 1.25 for 25%, 1.2 for 20% and so on. For profit on sales, divide by 0.8 for 20% and by 0.75 for 25%.
  6. Scan the four options and discard any that are below total cost. This removes one or two options quickly.

Common mistakes in Cost Sheet Problems: Profit, Price and Tender Quotations

  • Treating profit on sales as profit on cost

    Students see a percentage and multiply cost by that percentage without reading the word sales or 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

    Students use one unit figure for everything.

    Fix: Production costs use units produced. Cost of sales uses units sold. Check closing stock before dividing.

  • Valuing closing finished goods at selling price or including selling overheads

    Students forget that stock is carried at cost of production.

    Fix: Value closing stock at cost of production per unit. Selling overheads are added only after cost of goods sold.

  • Keeping old overhead amounts in a tender estimate

    Students copy past figures instead of recomputing.

    Fix: If an overhead is a percentage of wages or works cost, recompute it on the new figure. Fixed overheads stay as stated only if the question says so.

  • Ignoring opening and closing stock of materials or WIP

    Students jump to purchases as material cost.

    Fix: Always use opening stock + purchases − closing stock. Adjust WIP in works cost.

  • Including items not part of cost, such as interest on loans or income tax

    These appear in the question to distract.

    Fix: Leave out financial items, appropriations and losses on sale of assets from the cost sheet unless the question says otherwise.

Worked examples

Example 1

A firm produced 10,000 units. Opening raw material ₹40,000; purchases ₹2,60,000; closing raw material ₹30,000; direct wages ₹1,50,000; factory overheads ₹1,05,000; office overheads ₹45,000; selling overheads ₹37,000. There was no opening stock of finished goods and no work-in-progress. Closing stock of finished goods was 1,000 units. Profit is 20% on sales. The sales value is: (A) ₹6,60,000 (B) ₹6,64,000 (C) ₹6,87,500 (D) ₹7,12,500

Show the solution
  1. Material consumed = 40,000 + 2,60,000 − 30,000 = ₹2,70,000.
  2. Prime cost = 2,70,000 + 1,50,000 = ₹4,20,000.
  3. Works cost = 4,20,000 + 1,05,000 = ₹5,25,000.
  4. Cost of production = 5,25,000 + 45,000 = ₹5,70,000. Cost per unit = 5,70,000 ÷ 10,000 = ₹57.
  5. Closing finished goods = 1,000 × 57 = ₹57,000. Cost of goods sold = 5,70,000 − 57,000 = ₹5,13,000.
  6. Cost of sales = 5,13,000 + 37,000 = ₹5,50,000.
  7. Profit is 20% on sales, so cost is 80% of sales. Sales = 5,50,000 ÷ 0.8 = ₹6,87,500.

Answer: Option (C) ₹6,87,500. Profit is ₹1,37,500. Option (A) wrongly adds 20% on cost. Option (D) wrongly uses cost of production.

Example 2

A firm made 2,000 units last year. Materials cost ₹3,00,000 and wages ₹2,00,000. Factory overheads were 60% of wages. For a tender of 2,500 units, material price per unit will be 10% higher and the wage rate per unit 20% higher. Factory overheads stay at 60% of wages. Office and selling overheads are 10% of works cost. The firm wants a profit of 25% on the tender price. Find the tender price.

Show the solution
  1. Last year's material per unit = 3,00,000 ÷ 2,000 = ₹150. New rate = 150 × 1.10 = ₹165. For 2,500 units = ₹4,12,500.
  2. Last year's wages per unit = 2,00,000 ÷ 2,000 = ₹100. New rate = 100 × 1.20 = ₹120. For 2,500 units = ₹3,00,000.
  3. Prime cost = 4,12,500 + 3,00,000 = ₹7,12,500.
  4. Factory overheads = 60% of 3,00,000 = ₹1,80,000. Works cost = 7,12,500 + 1,80,000 = ₹8,92,500.
  5. Office and selling overheads = 10% of 8,92,500 = ₹89,250. Total cost = 8,92,500 + 89,250 = ₹9,81,750.
  6. Profit is 25% on price, so cost is 75% of price. Tender price = 9,81,750 ÷ 0.75 = ₹13,09,000.
  7. Per unit price = 13,09,000 ÷ 2,500 = ₹523.60.

Answer: The tender price is ₹13,09,000, which is ₹523.60 per unit. Profit is ₹3,27,250.

Exam tips

  • Read the profit base first. Wording like on sales, on selling price or on cost decides which formula you use.
  • If units are given, compute cost per unit even when the question does not ask. It helps you value closing stock.
  • In estimated cost sheets, change only what the question says. Recompute percentage overheads on the new base.
  • Exclude items such as interest paid, donations, and loss on sale of fixed assets from the sheet. Look for them as traps in MCQ data.
  • With no negative marking, attempt every question. Eliminate options below total cost and then check which of the rest matches your multiplier.

Practice questions from Statement of Cost and Profit (Cost Sheet)

Cost Sheet Problems: Profit, Price and Tender Quotations 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 Tender Quotations: frequently asked questions

How do I find selling price from a cost sheet when profit is on sales?

First find cost of sales. Then divide it by (100 − profit%) ÷ 100. For 20% profit on sales, selling price = cost of sales ÷ 0.8. Profit is the difference between selling price and cost.

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

Profit on cost is a percentage of the cost, so 25% on cost makes price 1.25 times cost. Profit on sales is a percentage of the price, so 20% on sales makes price cost ÷ 0.8. The same percentage gives different prices. 20% on sales gives the same price as 25% on cost, because 20% on sales equals 25% on cost.

How is a tender price calculated?

Prepare an estimated cost sheet for the new job using expected rates, quantities and overhead percentages. This gives total cost. Add the required profit, as a percentage of cost or of price, to get the tender price.

Do I use units produced or units sold to find cost per unit?

Use units produced for cost of production per unit. Use units sold for cost of sales per unit. If there is closing finished stock, these two unit figures differ.