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

Which of the following items is excluded from the cost sheet because it is a pure financial or non-cost item?

Interest paid on long-term loans is excluded from the cost sheet because it is a financial charge, not a cost of production or sale. Factory power, machinery depreciation and royalty on production are operating costs and are included in the cost sheet.

  1. AFactory power charges
  2. BInterest paid on long-term loansCorrect
  3. CDepreciation on factory machinery
  4. DRoyalty paid on production

Explanation

Interest on loans is a financial charge and under cost accounting it is excluded from the cost sheet. Factory power, machinery depreciation and royalty on production are all genuine costs of production. Including interest would distort the comparison of cost between firms with different financing.

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