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Unit 5: Basic Cost Concepts
Notes
Example: In the example continued, if we add the following data,
Salesman's Salary 10,500
Travelling Expenses 1,000
Carriage Outward 750
Advertising 3,500
Warehouse Charges 1,000
Calculate the cost of sales.
Solution:
Cost of Sales = Cost of Production + Selling Overheads
Cost of Production = 5,83,000 (from the previous example)
Selling Overheads = Salesman’s Salary + Travelling Expenses + Carriage Outward +
Advertising + Warehouse Charges
= 10,500 + 1,000 + 750 + 3,500 + 1,000
= 16,750
Hence, Cost of Sales = 5,83,000 + 16,750
= 5,99,750
Figure 5.4
Cost of Sales
Selling Overheads Cost of Production
Salesman salary
Carriage outward
Salesmen commission
Travelling expenses
Advertising
Free samples
Warehousing
Delivery charges
The last but most important stage in the unit costing is determining the selling price of the
commodities. The selling price of the commodities is fixed by way of adding both the cost of
sales and profit margin out of the product sales.
Sales = Cost of Sales + Margin of Profit
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