Cost of Production refers to the total cost of manufacturing a product or service. It includes direct costs such as raw materials, labor costs, and factory overheads, as well as indirect costs such as rent, utilities, and depreciation.
Cost of Production = Cost of Raw Materials + Cost of Direct Labor + Cost of Direct Overhead.
Cost of Sale refers to the cost of producing or acquiring the goods that a company sells. It includes the cost of raw materials, direct labor, and other direct costs that are necessary to manufacture or acquire the goods.
Cost of Sales = Opening Inventory + Cost of Production – Closing Inventory
Example :
Cost of Raw Material =100
Cost of Labor = 50
Other Direct overhead = 30
Opening Inventory = 20
Closing Inventory = 40
Cost of Production = Cost of Raw Materials + Cost of Direct Labor + Cost of Direct Overhead.
Cost of Production = 100+50+30 = 180
Cost of Sales = Opening Inventory + Cost of Production – Closing Inventory
Cost of Sale = 20+180-40 = 160
