Q.Distinguish between Cost of Production and Cost of Sales, stating clearly what is added to move from one to the other.

Cost of Production measures what it cost to MANUFACTURE the goods; Cost of Sales measures the total cost attributable to the goods actually SOLD, after accounting for finished-goods stock and selling/distribution effort.

Cost of Production is reached by adding Office & Administration Overhead to Factory Cost: Cost of Production = Factory Cost + Office & Administration Overhead. It represents the total cost of the goods actually MANUFACTURED during the period — it says nothing yet about how many of those goods were actually sold, or what it cost to sell and deliver them.

Cost of Sales goes two steps further. First, Cost of Production is adjusted for opening and closing stock of Finished Goods (Opening Stock of Finished Goods added, Closing Stock of Finished Goods subtracted) to arrive at the Cost of Goods Sold — the cost of only those units that were actually SOLD this period, which may differ from the units produced if some finished stock carried over from, or into, another period. Second, Selling & Distribution Overhead is added to the Cost of Goods Sold to reach Cost of Sales: Cost of Sales = Cost of Goods Sold + Selling & Distribution Overhead.

A frequent error is treating Cost of Production and Cost of Sales as the same figure whenever no Finished Goods stock is mentioned in a problem — that shortcut only works when opening and closing Finished Goods stock happen to be equal (or absent altogether); whenever the two stock figures dif …