## The Cost Sheet — Your Foundation for WC Estimation

Before estimating working capital, you must be fluent in the cost sheet (formally covered in Cost & Management Accounting). WC requirement is built up component-by-component from the cost at each stage of production, so you need to know exactly what cost each stage carries.

### The full cost build-up

```

Opening stock of RM xxx

+ Purchase of RM xxx

Closing stock of RM (xxx)

= Raw Material (RM) consumed xxx

+ Direct wages xxx

+ Direct expenses xxx

= PRIME COST xxx

+ Production Overheads xxx

= Gross Works Cost xxx

+ Opening WIP xxx

Closing WIP (xxx)

= WORKS / FACTORY COST / Cost of Production (COP) xxx

+ Opening Finished Goods xxx

Closing Finished Goods (xxx)

= COST OF GOODS SOLD (COGS) xxx

+ Administration Overheads (AOH) xxx

+ Selling & Distribution Overheads (SOH) xxx

= COST OF SALES (COS) xxx

+ Profit xxx

= SALES xxx

```

### Why each stage matters for working capital

Each inventory type is valued at the cost up to its stage:

Raw material stock → valued at RM cost
WIP → valued at material + proportion of conversion cost (often material full + 50% of wages/overheads)
Finished goods stock → valued at Cost of Production (COP)
Debtors → valued at Cost of Sales (or at Sales if the question asks for debtors at selling price)

Getting the valuation base right is the single most important skill in WC sums.

### Doubt Buster

Administration Overheads (AOH) may alternatively be treated as a product cost (i.e., added before COGS rather than after) depending on the question's assumption — watch for the instruction and follow classroom convention.

Worked example

### Example 1

Q: RM consumed is ₹10,00,000, direct wages ₹4,00,000, direct expenses ₹50,000, production overheads ₹2,00,000. Find Prime Cost and Gross Works Cost.

Prime Cost = RM consumed + Direct wages + Direct expenses = 10,00,000 + 4,00,000 + 50,000 = ₹14,50,000.

Gross Works Cost = Prime Cost + Production Overheads = 14,50,000 + 2,00,000 = ₹16,50,000.

(If there were opening/closing WIP, adjust them next to reach Works/Factory Cost = COP.)

### Example 2

Q: At which cost are finished goods stock and debtors valued for WC estimation?

A: Finished goods are valued at Cost of Production (COP). Debtors are valued at Cost of Sales by default — but if the problem specifies debtors are to be taken at selling price, value them at Sales instead. Always read the instruction.

⚠️ Common exam mistakes

Valuing finished goods or debtors at sales value when the question expects cost basis (or vice-versa) — read the instruction carefully.
Forgetting to adjust opening/closing WIP to convert Gross Works Cost into Works/Factory Cost (COP).
Adding selling & distribution overheads into COGS — they belong in Cost of Sales, after COGS.
Ignoring the AOH treatment note — AOH can be a product cost (before COGS) or a period cost (after COGS) depending on the assumption used.

Reference:

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Cost Sheet Format for Working Capital Calculations

Worked example

⚠️ Common exam mistakes