Arrange the following components of the cost sheet in proper sequence starting from first to last:

A. Cost of sale
B. Cost of production
C. Raw material consumed
D. Factory cost
E. Prime cost

Choose the correct answer from the options given below:

Correct option is D

The correct sequence for arranging the components of the cost sheet is as follows:

1. Raw Material Consumed (C): The cost sheet begins with raw materials, the starting point of production.
2. Prime Cost (E): Prime cost is calculated by adding direct expenses like labor and raw material costs.
3. Factory Cost (D): Factory cost includes prime cost along with factory overheads, such as maintenance or electricity used in production.
4. Cost of Production (B): Factory cost is adjusted to determine the cost of production by accounting for administrative costs related to production.
5. Cost of Sale (A): Finally, the cost of sale is calculated by adding selling and distribution costs to the cost of production.

Thus, Option d) is the correct sequence: C → E → D → B → A.

Information Booster

A cost sheet is a detailed statement that presents the cost of production and sale for a specific period. The cost sheet helps businesses calculate the exact cost of their products step-by-step. Following the sequence ensures no expense is missed.
1. Raw Material Consumed (C): It refers to the basic materials used in manufacturing. Without this step, production cannot start.
Example: In a car manufacturing factory, raw materials like steel, rubber, and glass are essential for making cars.
2. Prime Cost (E): Prime cost is like the heart of production—it combines all direct expenses like raw materials and labor.
Example: The cost of assembling car parts, like engines, tires, and windows, done by labor.
3. Factory Cost (D): Factory cost is the total of prime cost and the extra expenses needed to run the factory (like electricity or rent).
Example: The electricity for running machines, maintenance of assembly lines, and factory administration.
4. Cost of Production (B): This is the cost of making the finished product, ready to be sold. This is the factory cost adjusted for opening and closing work-in-progress (WIP) inventory.
Example: The cost of all fully assembled cars, excluding the partially completed cars in the factory.
5. Cost of Sale (A): This is the final step and includes the cost of packaging, advertising, and delivering the product.
Example: Transporting the finished cars to dealerships and the promotional costs for marketing them.