A company produced 12,000 units and sold 10,000 units; there was no opening stock. Direct material ₹6,00,000; direct labour ₹3,60,000; factory overheads 20% of prime cost; general administration overheads (not related to production) ₹1,08,000; selling and distribution overheads ₹3 per unit sold. Following the current ICAI cost sheet format, closing stock is valued at cost of production. The cost of sales is:

Correct answer: A) ₹10,98,000

Explanation

Factory overheads = 20% x (₹6,00,000 + ₹3,60,000) = ₹1,92,000, so works cost = cost of production = ₹11,52,000, i.e. ₹96 per unit (in the current ICAI format only administration overheads relating to production form part of cost of production). Closing stock = 2,000 x ₹96 = ₹1,92,000, so cost of goods sold = 10,000 x ₹96 = ₹9,60,000. Add general administration overheads ₹1,08,000 (a period cost added after cost of goods sold, not carried in stock) and selling and distribution overheads 10,000 x ₹3 = ₹30,000. Cost of sales = ₹10,98,000. Treating general administration overheads as part of cost of production (the older format) would wrongly carry ₹18,000 of them in closing stock and give ₹10,80,000.