Accounting: Material and Stores: Total Cost of Production and Cost of Goods Sold (For CBSE, ICSE, IAS, NET, NRA 2022)

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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. ₹

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

Table Supporting: Cost_of_Goods_Sold
DetailsAmount (₹)
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 ₹ 10,000 and profit on cost 10 % . Assume the cost is ₹ 100 and profit on cost is ₹ 10. Hence Profit on cost of ₹ 10,000 is 10,000 × 10/100 = ₹ 1,000.

Case 2: If Cost is ₹ 10,800 and profit on sales price is 10 % . Assume sales price is ₹ 100. cost price is ₹ 90 [i.e.. ₹ 100 – ₹ 10] . When profit on cost of ₹ 90 is ₹ 10. Hence profit on cost of ₹ 10,800 is 10,800 × 10/90 = ₹ 1,200.

Case 3: If sales price is ₹ 12,100 and profit on cost is 10 % . Assume Cost price is ₹ 100. Sales price is ₹ 110 [i.e.. 100 + 10] . If sales price is ₹ 110, profit is ₹ 10. Profit on sales price of ₹ 12,100 is 12,100 × 10/110 = ₹ 1,100 profit

Example: From the following information, calculate the value of goods sold. ₹

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

Table Supporting: Cost_of_Goods_Sold
DetailsAmount (₹)
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

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