CMA Foundation · Fundamentals of Financial and Cost Accounting · Statement of Cost and Profit (Cost Sheet)
Sharma Tools Ltd has a total cost of sales of Rs 4,80,000 for the period. It sells goods at a price that gives a profit of 20% on selling price. What is the sales value?
The sales value is Rs 6,00,000. Since profit is 20% of selling price, cost of sales is 80% of sales, so sales equal 4,80,000 divided by 0.80. Adding 20% to cost would wrongly give Rs 5,76,000, which is profit on cost, not on selling price.
- ARs 5,76,000
- BRs 6,00,000Correct
- CRs 5,80,000
- DRs 9,60,000
Explanation
Profit is 20% of sales, so cost is 80% of sales. Sales = 4,80,000 / 0.80 = Rs 6,00,000. Check: profit = 1,20,000, which is 20% of 6,00,000. Rs 5,76,000 results from wrongly adding 20% to cost (4,80,000 x 1.2), which gives profit on cost rather than on selling price.
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