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

Which item would be excluded when computing the cost of production in a cost sheet under CAS-based practice, because it is a financial or abnormal item rather than a normal cost?

Interest on long-term loans and loss on sale of fixed assets are financial or non-operating items, not normal costs of production, so a cost sheet excludes them. Factory depreciation, power and the works manager's salary are normal factory overheads and are included.

  1. ADepreciation on factory machinery
  2. BInterest paid on long-term loan and loss on sale of a fixed assetCorrect
  3. CFactory power consumed in production
  4. DSalary of the works manager

Explanation

Interest on borrowings (a financial charge) and loss on sale of an asset are not normal operating costs of production and are excluded from the cost sheet. Depreciation, power and works manager's salary are normal factory costs and are included.

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