A cost sheet is a statement prepared at periodical intervals of time, which accumulates all the elements of the costs associated with a product or production job. It is used to compile the margin earned on a product or job and forms the basis for the setting of prices on similar products in the future. We shall study the Cost Sheet Format in detail.
What is a Cost Sheet?
A Cost sheet is a memorandum statement that provides the estimated detailed costs in respect of a cost centre or a cost unit in a summarized manner. In a Cost Sheet, the elements of cost are arranged under different heads following a logical order. It depicts the detailed cost of the total output for a certain given period.
The cost sheet does not form part of the double-entry system. In it, additional columns can be added to indicate the cost per unit at different stages of production.
Cost Sheet Format
A Cost Sheet depicts the following facts:
- Total cost and cost per unit for a product.
- The various elements of cost such as prime cost, factory cost, production cost, cost of goods sold, total cost, etc.
- Percentage of every expenditure to the total cost.
- Compare the cost of any two periods and ascertain the inefficiencies if any.
- Information to management for cost control
- Calculate and summarize the total cost of the product.
Learn more about the Meaning of Cost Accounting here in detail.
Importance and Objectives of Cost Sheet
1. For calculating the total cost break-up
A cost sheet shows the break-up of the total cost into different elements, i.e. material, labour, overheads, etc. It also depicts the total cost and cost per unit of the units produced.
2. For determining the selling price
A cost sheet helps in determining the selling price of a product or of a service. The cost sheet ascertains cost at each stage of the product and also the total cost of the product, where a margin of profit is added and thus the selling price is ascertained.
Browse more Topics under Fundamentals Of Cost Accounting
- Origin and Evolution of Cost Accounting
- Meaning of Cost, costing and cost accounting
- Importance of Cost Accounting
- Financial Account vs Cost Account
- Meaning of Management Accounting
- Scope and Functions of Cost Accounting
- Objectives of Cost Accounting
- Advantages of Cost Accounting
- Costing – an aid to management
- Characteristics of an Ideal Costing System
- Classification of Cost
- Methods of Costing
- Techniques of Costing
- Cost Unit and Cost Centre
- Cost Control and Cost Reduction
- Elements of Cost
3. It facilitates comparison
It helps in comparing the costs of the product over a period of time. This helps the organisation to investigate the reasons for increasing costs and also control them on the basis of them.
4. Facilitating managerial decision making
Preparation of cost sheet helps managers at various levels in their decision-making process such as
- to produce or buy a component,
- what price of goods to quote in the tender,
- whether to retain or replace an existing machine,
- how to reduce costs and maximize profit.
- identify and make decisions whether they need to continue with the product or not.
5. Preparation of budgets
Organizations can prepare a budget with the help of a cost sheet. We can prepare the budget by using the current or previous year’s data.
Based on our existing cost sheet, we can make estimates of our costs for the next financial year. It helps to prepare and make the necessary arrangement of funds for costs of the next financial year
Elements of Cost
Prime Cost: It comprises direct material, direct wages, and direct expenses. Alternatively, the Prime cost is the cost of material consumed, productive wages, and direct expenses.
Factory Cost: Factory cost or works cost or manufacturing cost or production cost includes in addition to the prime cost the cost of indirect material, indirect labour, and indirect expenses. It also includes the amount or units of WIP or incomplete units at the end of the period.
Cost of Production: When Office and administration cost at the end of the period are added to the Factory cost, we arrive at the cost of production or cost of goods sold. Here, we make an adjustment for opening and Closing finished goods.
Total Cost: Total cost or alternatively cost of sales is the cost of production plus selling and distribution overheads.
Items excluded from Costs while preparing Cost Sheet
The following items of expenses, losses or incomes are excluded from the cost sheet:
- Related to capital assets
- appropriation of profits
- amortization of fictitious or intangible assets
- abnormal gains and losses or items of a purely financial nature
Examples of such items can be:
- loss on sale of fixed assets
- interest on capital
- discount on issue or redemption of shares or debentures
- expenses relating to the previous period
- cash discounts
- bad debts
- damages payable
- penalties and fines
- interest or dividend received on investments
- transfer fees received
- profit on the sale of fixed assets
- appropriation of profits such as income tax
- dividend paid
- transfer of profits to reserves or funds
- donations and charities
- excess provision for depreciation on fixed assets
- amortization of fictitious or intangible assets such as goodwill written off
- preliminary expenses written off
- patents, trademarks and copyrights written off
- capital issue expenses
- underwriting commission
- loss on the issue of shares and debentures written off
Proforma of A Cost Sheet
|ADD||OP STOCK OF RAW MATERIAL|
|LESS||CL STOCK OF RAW MATERIAL|
|ADD||WORKS OR FACTORY OVERHEADS|
|ADD||OP STOCK OF WIP|
|LESS||CL STOCK OF WIP|
|ADD||ADMINISTRATION OR OFFICE OVERHEADS|
|COST OF PRODUCTION|
|ADD||SELLING AND DISTRIBUTION OVERHEADS|
|ADD||OP STOCK OF FG|
|LESS||CL STOCK OF FG|
|COST OF SALES|
Method of Preparation of Cost Sheet
|Step I||Prime Cost = Direct Material Consumed + Direct Labour + Direct Expenses
Direct Material= Material Purchased + Opening stock of raw material-Closing stock of raw material.
|Step II||Works Cost = Prime Cost + Factory Overheads (Indirect Material + Indirect Labour + Indirect Expenses)+opening Work in progress-Closing Work in progress|
|Step III||Cost of Production = Works Cost + Office and Administration overheads + Opening finished goods-Closing finished goods|
|Step IV||Total Cost = Cost of Production + Selling and Distribution Overheads|
|Profit||Sales – Total Cost|
Solved Example for You
From the following information prepare a cost sheet.
|Direct material -Opening stock||20000|
|Direct material -Closing Stock||25000|
|Factory manager salary||15000|
|Office and administration overheads||28,000|
|Opening stock of finished goods||5000|
|Closing stock of finished goods||10000|
|Selling and distribution overheads||33,000|
Company desires a margin of 20% profit on the cost of sales
|COST SHEET FOR THE MONTH OF__________ FOR XYZ.|
|ADD||OP STOCK OF RAW MATERIAL||20,000.00|
|LESS||CL STOCK OF RAW MATERIAL||25,000.00||–|
|ADD||WORKS OR FACTORY OVERHEADS|
|Factory manager salary||15,000.00|
|ADD||OP STOCK OF WIP||13,000.00|
|LESS||CL STOCK OF WIP||7,000.00||6,000.00|
|ADD||ADMINISTRATION OR OFFICE OVERHEADS||28,000.00|
|COST OF PRODUCTION||174,000.00|
|ADD||SELLING AND DISTRIBUTION OVERHEADS||33,000.00||33,000.00|
|ADD||OP STOCK OF FG||5,000.00|
|LESS||CL STOCK OF FG||10,000.00||–|
|COST OF SALES||202,000.00|
|ADD||PROFIT MARGIN @ 20% ON COST OF SALES||40,400.00|