Q.A company's Sales for the year were ₹2,00,000, and Profit was 20% on Sales. The Cost of Production for the year was ₹1,40,000 and Selling & Distribution Overhead was ₹20,000.

Profit expressed as a percentage ON SALES must be calculated on the Sales figure itself, not on Cost — this is different from most of the earlier Illustrations, where profit was a percentage on Cost of Sales.

(a) Profit = 20% of Sales = 20% × 2,00,000 = ₹40,000. Cost of Sales = Sales − Profit = 2,00,000 − 40,000 = ₹1,60,000. …

When Profit is stated as a percentage on Sales (rather than on Cost of Sales, as in the earlier Illustrations), it must be calculated directly on the Sales figure, not on any cost total — this is a distinction worth pausing on, since the same percentage figure gives a DIFFERENT rupee amount depending on which base it is applied to.

1. Profit and Cost of Sales, working from Sales downward: Profit = 20% of Sales = 20% × ₹2,00,000 = ₹40,000 Cost of Sales = Sales − Profit = ₹2,00,000 − ₹40,000 = ₹1,60,000
2. Independent verification, working from Cost of Production upward: Cost of Sales = Cost of Production + Selling & Distribution Overhead = ₹1,40,000 + ₹20,000 = ₹1,60,000 Both routes give exactly ₹1,60,000 for Cost of Sales, confirming the figures are internally consistent — this cross-check is exactly the kind of dual-solve discipline worth applying whenever a Cost Sheet problem gives both a 'top-down' figure (Sales, Profit %) and 'bottom-up' figures (Cost of Production, Overhead), since the two should always reconcile. …

An alternative way to see the same result: since Profit is 20% of Sales, Cost of Sales must be the remaining 80% of Sales — 80% × ₹2,00,000 …

The single most common error in this type of problem is applying a 'percentage on Sales' profit figure as if it were a 'percentage on Cost' figure (or vice versa) — the two bases give genuinely different rupee amounts for the same percentage, and a Cost Sheet question always spec …