Q.Prepare a Cost Sheet from the following particulars for the year ended 31st March 2026, showing Prime Cost, Factory Cost, Cost of Production, Cost of Sales, and Sales:

• Opening Stock of Raw Material: ₹10,000
• Purchases of Raw Material: ₹50,000
• Closing Stock of Raw Material: ₹8,000
• Direct Wages: ₹30,000
• Direct Expenses: ₹3,000
• Factory Overhead: ₹17,000
• Office & Administration Overhead: 10% of Factory Cost
• Selling & Distribution Overhead: ₹7,800
• Profit: 25% on Cost of Sales

The first step is always to convert Raw Material Purchases into Raw Material CONSUMED using the opening and closing stock — only the material actually used enters the Cost Sheet.

Raw Material Consumed = Opening Stock + Purchases − Closing Stock = 10,000 + 50,000 − 8,000 = ₹52,000

Prime Cost = 52,000 + 30,000 + 3,000 = ₹85,000

Factory Cost = 85,000 + 17,000 = ₹1,02,000

Office & Admin Overhead (10% of Factory Cost) = 10% × 1,02,000 = ₹10,200

Cost of Production = 1,02,000 + 10,200 = ₹1,12,200 …

Since only Purchases of Raw Material is given (not the amount actually used), the first step is to compute Raw Material CONSUMED using the opening and closing stock figures. Only the consumed figure — never the purchase figure — enters Prime Cost, since Prime Cost measures material actually used in production, not merely bought.

Step 1 — Raw Material Consumed:

Opening Stock of Raw Material + Purchases − Closing Stock of Raw Material

= ₹10,000 + ₹50,000 − ₹8,000 = ₹52,000

A very common mistake is charging the full Purchases figure (₹50,000) to Prime Cost instead of first adjusting it for opening and closing stock to find the material actually CONSUMED (₹52,000). Another frequent error is computing 'Office & Administration Overhead: 10% of Factory Cost' as 10% of Prime Cost instead of 10% of the …