CA Intermediate · Cost and Management Accounting · Cost Sheet
In a cost sheet prepared for a manufacturing firm, which of the following is treated as part of 'Cost of Production' but NOT as part of 'Factory Cost'?
Head office administration overheads are added after factory cost to arrive at cost of production. Factory building depreciation and supervisor salary are factory overheads already inside factory cost, and royalty on units sold is a selling and distribution cost added later.
- ADepreciation on factory building
- BAdministration overheads relating to the head officeCorrect
- CRoyalty paid on units sold
- DSalary of the factory supervisor
Explanation
Factory cost covers prime cost plus factory overheads. Cost of production is factory cost plus administration overheads (adjusted for opening and closing work-in-progress, where applicable). Head office administration overheads therefore enter at the cost of production stage. Factory building depreciation and supervisor salary are factory overheads, while royalty on sales is a selling cost.
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