Hi, I was trying Question 20 of the April 2006 exam. In the calculation of the cost of sales (examiners' report) the depreciation of property and machinery is not included. Instead, it is included Admin expenses. Why is that? Throughout the course notes depreciation is always included at the cost of sales. Any explenation for. How would the examiner mark you, if you will include it in the cost of sales?
Hi Barbados You could argue that any depreciation arising from the passage of time (rather than that due to wear 'n' tear) is a fixed, rather than a variable, cost and therefore should be treated as an overhead (expense) rather than a cost that varies with sales (cost of sales). However, I would recommend following the Core Reading. As you say, according to the Core Reading, depreciation should be included in the cost of sales. Margaret
