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CA Intermediate · Cost and Management Accounting · Cost Sheet

In a cost sheet, which of the following is classified as part of 'Factory (Works) Overheads' and therefore included in the cost of production, rather than treated as an administration or selling cost?

Depreciation on the factory building is a factory overhead because it arises from the production activity. It is included in works cost and cost of production. CFO salary is an administration cost, and commission and carriage outwards are selling and distribution costs.

  1. ADepreciation on the factory buildingCorrect
  2. BSalary of the company's chief financial officer
  3. CCommission paid to sales agents
  4. DCarriage outwards on finished goods

Explanation

Costs incurred in running the factory, such as depreciation of factory building, are factory overheads and form part of works cost. CFO salary is an administration overhead, while sales commission and carriage outwards are selling and distribution overheads.

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