Practice Questions: Cost Sheet and Reconciliation
Chapter Nine
Syllabus topic 3, "Prepare Cost sheet/statement for production of goods and providing of services"
Pages 22 to 24 of 82
How to use this chapter
Cover the answers. Work Question 1 downward with all four stages labelled, then carry its profit into Question 2.
Check the cost sheet before starting the reconciliation. Cost of sales plus profit must equal sales. If it does not, the error is above and Question 2 will compound it.
Question 1, cost sheet
Sahyadri Manufacturing gives the following for the year ended 31 March 2027.
| Rs | |
|---|---|
| Stock of raw material, 1 April 2026 | 92,000 |
| Stock of raw material, 31 March 2027 | 1,06,000 |
| Purchases of raw material | 15,80,000 |
| Carriage inward | 34,000 |
| Direct wages | 6,40,000 |
| Royalty paid on units produced | 48,000 |
| Indirect wages | 84,000 |
| Factory rent and rates | 1,44,000 |
| Power | 1,12,000 |
| Depreciation of plant | 96,000 |
| Work-in-progress, 1 April 2026 | 62,000 |
| Work-in-progress, 31 March 2027 | 78,000 |
| Office and administration overhead | 2,18,000 |
| Finished goods, 1 April 2026 | 1,40,000 |
| Finished goods, 31 March 2027 | 1,86,000 |
| Selling and distribution overhead | 2,52,000 |
| Income-tax paid | 1,20,000 |
| Dividend received on investments | 18,000 |
| Sales | 36,00,000 |
Prepare a cost sheet showing prime cost, factory cost, cost of production, cost of goods sold, cost of sales and profit.
Question 2, reconciliation
Take the profit as per cost accounts from Question 1. On examination of the financial accounts for the same year:
- the dividend received of Rs 18,000 was not recorded in the cost accounts;
- factory overhead was over-absorbed in the cost accounts by Rs 26,000;
- income-tax of Rs 1,20,000 was paid;
- goodwill of Rs 40,000 was written off;
- closing stock of finished goods was valued Rs 22,000 higher in the cost accounts than in the financial accounts.
Prepare a reconciliation statement and ascertain the profit as per financial accounts.
Question 3, short answers
Answer each in one or two sentences.
(a) Where in a cost sheet is work-in-progress adjusted, and why there?
(b) A lorry carries a load 300 kilometres and returns empty. How many kilometres enter the tonne-kilometre computation?
(c) Overhead was over-absorbed by Rs 50,000. Starting from the cost profit, is it added or deducted?
(d) Name three items that appear in a cost sheet but never in a profit and loss account.
---
Answers
Question 1
Working note: raw material consumed.
| Particulars | Amount, Rs |
|---|---|
| Stock of raw material, 1 April 2026 | 92,000 |
| Add: Purchases of raw material | 15,80,000 |
| Add: Carriage inward | 34,000 |
| Less: Stock of raw material, 31 March 2027 | (1,06,000) |
| Total, being raw material consumed | 16,00,000 |
Working note: factory overhead.
| Particulars | Amount, Rs |
|---|---|
| Indirect wages | 84,000 |
| Factory rent and rates | 1,44,000 |
| Power | 1,12,000 |
| Depreciation of plant | 96,000 |
| Total, being factory overhead | 4,36,000 |
The cost sheet.
| Particulars | Amount, Rs |
|---|---|
| Raw material consumed | 16,00,000 |
| Direct wages | 6,40,000 |
| Royalty on units produced, a direct expense | 48,000 |
| Total, being PRIME COST | 22,88,000 |
| Particulars | Amount, Rs |
|---|---|
| Prime cost | 22,88,000 |
| Add: Factory overhead | 4,36,000 |
| Add: Work-in-progress, 1 April 2026 | 62,000 |
| Less: Work-in-progress, 31 March 2027 | (78,000) |
| Total, being FACTORY COST | 27,08,000 |
Practice Questions: Cost Sheet and Reconciliation
| Particulars | Amount, Rs |
|---|---|
| Factory cost | 27,08,000 |
| Add: Office and administration overhead | 2,18,000 |
| Total, being COST OF PRODUCTION | 29,26,000 |
| Particulars | Amount, Rs |
|---|---|
| Cost of production | 29,26,000 |
| Add: Finished goods, 1 April 2026 | 1,40,000 |
| Less: Finished goods, 31 March 2027 | (1,86,000) |
| Total, being COST OF GOODS SOLD | 28,80,000 |
| Particulars | Amount, Rs |
|---|---|
| Cost of goods sold | 28,80,000 |
| Add: Selling and distribution overhead | 2,52,000 |
| Total, being COST OF SALES | 31,32,000 |
| Particulars | Amount, Rs |
|---|---|
| Sales | 36,00,000 |
| Less: Cost of sales | (31,32,000) |
| Total, being PROFIT as per cost accounts | 4,68,000 |
Note. Income-tax of Rs 1,20,000 and dividend received of Rs 18,000 are purely financial items and are excluded from the cost sheet. Both appear in Question 2.
Three marks most often lost. Putting royalty on units produced into factory overhead: it varies with production and is traceable to it, so it is a direct expense and belongs in prime cost. Bringing income-tax or the dividend into the sheet. And adjusting work-in-progress before factory overhead rather than after it.
Question 2
| Particulars | Amount, Rs |
|---|---|
| Dividend received, not recorded in cost accounts | 18,000 |
| Factory overhead over-absorbed in cost accounts | 26,000 |
| Total, being the additions | 44,000 |
| Particulars | Amount, Rs |
|---|---|
| Income-tax paid, in financial accounts only | 1,20,000 |
| Goodwill written off, in financial accounts only | 40,000 |
| Closing stock of finished goods overvalued in cost accounts | 22,000 |
| Total, being the deductions | 1,82,000 |
| Particulars | Amount, Rs |
|---|---|
| Profit as per cost accounts, from Question 1 | 4,68,000 |
| Add: Total of the additions above | 44,000 |
| Less: Total of the deductions above | (1,82,000) |
| Total, being profit as per financial accounts | 3,30,000 |
Three things to check.
Over-absorbed is an addition. Too much cost was charged, so the cost profit was understated by Rs 26,000.
Closing stock overvalued in the cost accounts is a deduction. A higher closing stock reduced the cost charged and so raised the cost profit.
Goodwill written off is a financial expense. It is not a cost of making anything, so cost accounting never saw it.
Question 3
(a) After factory overhead has been added, in arriving at factory cost. Factory cost is the cost of production completed, and partly finished units have already absorbed some factory overhead, so the adjustment cannot come earlier.
(b) 300 kilometres. The empty return produces no tonne-kilometres. Its cost is still included in the cost statement, because the diesel was burnt, but it produced no output to divide by.
(c) Added. Over-absorption means more cost was charged to production than was incurred, so the cost profit is too low by that amount.
(d) Notional rent on premises the firm owns, notional interest on the proprietor's own capital, and a notional salary for a proprietor who works in the business. They are charged so the cost is comparable with a firm that rents and borrows, and they are not transactions, so the financial accounts do not record them.
Practice Questions: Cost Sheet and Reconciliation
In short
- Label all four stages; a stage not shown is a mark not earned.
- Royalty on units produced is a direct expense, not factory overhead.
- Three stocks, three places.
- Check the sheet with cost of sales plus profit equals sales before going on.
- In the reconciliation, sort into the four groups first, then compute.
- Over-absorbed adds; closing stock overvalued in cost accounts deducts.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.