Total Cost of Production Part 2
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Total Cost of production is the sum of factory cost and office and administrative overheads.
Total Cost of production = Factory Cost + office and administration overheads
Cost of Goods Sold: Not all the products are sold at the instant. Cost of goods sold can be calculated by subtracting closing stock of finished goods from the sum of total cost of production and opening stock of finished goods.
Cost of goods sold = Total cost of production + Opening stock of Finished goods
- Closing stock of finished goods
Total Cost: It is also called as cost of sales. Sum of cost of goods sold and selling & distribution overheads gives the Total Cost of the product.
Total Cost = Cost of Goods sold + Selling and distribution overheads
Example:
From the following information calculate the total cost. Rs.
Direct material 1,60,000
Direct Labour 52,000
Direct Expenses 19,000
Factory overheads 45,000
Office and administration overheads 28,000
Selling and distribution overheads 33,000
Solution:
Statement Showing Total Cost
Details | Amount (Rs.) |
Direct Material: Material consumed Direct Labour Direct Expenses Prime Cost Factory Overheads Works Cost Office and Administrative Overheads Total cost of production Selling and Distribution heads Total Cost or Cost of Sales | 160000 52000 19000 231000 45000 276000 28000 304000 33000 327000 |
Sales:
If the profit margin is added to the total cost of the product that will gives the Total Sales. If Total cost exceeds the sales that results loss.
Sales = Total Cost + Profit
Note: Profit margin sometimes given on percentage of sales or percentage of costs. Different cases and calculation of profit –
Case 1: If Cost is Rs.10,000 and profit on cost 10%. Assume the cost is Rs.100 and profit on cost is Rs.10. Hence Profit on cost of Rs.10,000 is 10,000 × 10/100 = Rs.1,000.
Case 2: If Cost is Rs.10,800 and profit on sales price is 10%. Assume sales price is Rs.100. cost price is Rs.90 [i.e. Rs.100 – Rs.10]. When profit on cost of Rs.90 is Rs.10. Hence profit on cost of Rs.10,800 is 10,800 × 10/90 = Rs.1,200.
Case 3: If sales price is Rs.12,100 and profit on cost is 10%. Assume Cost price is Rs.100. Sales price is Rs.110 [i.e.100 + 10]. If sales price is Rs.110, profit is Rs.10. Profit on sales price of Rs.12,100 is 12,100 × 10/110 = Rs.1,100 profit
Example: From the following information, calculate the value of goods sold. Rs.
Total Cost of Production 1,45,000
Opening stock of finished goods 22,000
Closing stock of finished goods 6,000
Selling and distribution overheads 25,000
Profit 22,000
Solution:
Statement Showing Total Cost
Details | Amount (Rs.) |
Total Cost of production Add: Opening stock of finished goods Less: Closing Stock of finished goods Cost of Goods Sold Selling and Distribution overheads Total Cost Profit Sales | 145000 22000 167000 6000 161000 25000 186000 22000 208000 |