Cost Sheet

MEANING AND DEFINITION OF COST SHEET

A cost sheet is a statement prepared to show the different elements of cost. Preparation of cost sheet is one of the functions of cost accounting. The expenses of a product are analyzed and classified under different heads in the form of statement. This statement is called cost sheet.

PURPOSE OF COST SHEET

1. It provides details of total cost under logical classification.

2. It provides cost per unit in difference stages.

3. It helps in comparison and control of cost.

4. Cost sheet is helpful in estimation of cost for preparation of tender and quotations.

5. It acts as basis for fixation of selling price.

General cost classification in a cost sheet comprises classification of costs into prime cost and Overheads. As:

total costs = direct costs + indirect costs, and

or

total costs = prime costs + indirect costs (as prime cost = direct costs)

or

total costs = prime costs + overheads (as overheads = all indirect costs)

or

total costs = prime costs + {factory overheads + office & administrative overheads

                                                  + selling & distribution overheads}

On functional basis overheads can be classified as works or factory overheads, office & administrative overheads and selling & distribution overheads.

Here it is to be noted that overheads can also be classified as fixed and variable overheads, but in a cost sheet, overheads are generally classified on functional basis i.e. works or factory overheads, office & administrative overheads and selling & distribution overheads.

Another notable feature is that cost compilation moves through various levels and each level given a separate name and tells what costs are added up to that level. The levels are:

(i)                Prime cost:direct material + direct labour + direct expenses)

(ii)             Works cost or factory cost: Prime cost + factory overheads

(iii)           Cost of production: Works cost + office and administrative overheads

(iv)           Cost of goods sold: Cost of production + adjustment of finished stock

(v)              Cost of sales: Cost of goods sold + selling and distribution overheads

(vi)           Sales: Cost of sales + profit

Treatment of Stocks

Stock is considered of three types:

(a)  Stock of Raw Material

(b)  Stock of Work-in-Progress

(c)  Stock of finished goods

(i)                In order to calculate the value of cost of raw materials consumed, use the relationship:

Opening stock of Raw Material

Add: Purchases

Less: Closing Stock of Raw Material

(ii)             Work in progress (WIP) is also known as semi finished stock: To calculate factory cost and value WIP, we use following relationship:

Prime Cost:	XX
Add: Factory Overheads	XX
Current Manufacturing Costs	XX
Add: Opening WIP	XX
Total Goods processed during the period	XX
Less: Closing stock of WIP	XX
Work Cost or Factory Costs	XX

(iii)           Stock of Finished Goods. In cost sheet stock of finished goods are adjusted after calculating cost of production because finished goods represents all costs incurred till production process. From cost of production, opening stock of finished goods is added and closing stock of finished goods is deducted to arrive at cost of goods sold as under:

Cost of Production	XX
Add: Opening Stock of finished goods	XX
Cost of Goods available for sale	XX
Less: Closing Stock of finished goods	XX
Cost of Goods Sold	XX

Direct material is the cost of material of which the final product is composed or made of. It is material which can directly be allocatedto a cost centre or cost object in a conveniently and economically feasible way.

Direct material includes raw material required to produce the goods. It also include:

(i) components, parts used in a product like tyres in a car

(ii) Any material used in production and completely loosing its identity in the final product. For example, fertilizers used in production of crops

(iii) Primary packing material.Example: wrapper of a biscuit pack.

Material cost includes cost of procurement, freight inwards, taxes & duties, insurance etc. directly attributable to the acquisition. Trade discounts, rebates, duty drawbacks, refunds on account of modvat, cenvat, GST and other similar items are deducted in determining the costs of direct material.

Direct labour cost represent labour costs incurred on employees/workers engaged directly in main production process or core business activity. This labour cost is directly responsible for converting raw material into finished goods. Direct labour compensates for the time and efforts consumed in making the product. Direct costs can be logically and conveniently attributed or allocated or charged to the production process. In other words, it can also be said that production process or rendering of the main service is not possible at all without such labour costs. In a manufacturing unit, wages paid to machine operator or wages paid to a carpenter in a furniture unit or wages to a mason in construction unit are examples of direct labour.

It includes:

(i)                Salary and wages

(ii)             Allowances and incentives

(iii)           Payment for overtime (normal or at the instance of customer)

(iv)           EPF and ESI

(v)              Leave with pay, free or subsidized food

Direct expenses: Direct Expenses are the expenses other than direct material or direct labour which can be identified or linked with the cost centre or cost object.Examples  of direct expenses  are:

• expenses for special moulds, dies, designs, drawings etc. required in a particular cost centre

• hiring charges for tools and equipments for a cost centre

• royalties in connection to a product

• Job processing charges etc.

Indirect Material is the cost of material which cannot be directly allocable to a particular cost centre or cost object.Materials which are of small value and cannot be identified in or allocated to a product/service are classified as indirect materials.  

Examples:

• Consumable spares and parts

• Lubricants etc.

Indirect labour cost is the wages of the employees which are not directly allocable to a particular cost centre

Examples of indirect labour:

• Salaries of staff in the administration and accounts department

• Salaries of security staff etc.

Indirect expenses are the expenses other than of the nature of material or labour and cannot be directly allocable to a particular cost centres. Indirect expenses are not be allocable to a particular cost centre.

Examples – insurance, taxes and duties, 

Format of Cost Sheet:

M/S ……

                                   Cost Sheet for the period ………………..

                                    No. of Units produced………… & Unit Price………….

Particulars	Rs.	Rs.	Per Unit
Opening Stock of materials
Add: Purchases
Add: Carriage inwards
Add: Octroi and customs duty
Add: Other expenses on purchases
Less: Closing Stock of raw materials
Cost of Direct Material Consumed
Direct or Productive Wages
Direct or Chargeable Wages
PRIME COST
Add: Works or Factory Overheads
Indirect Materials
Indirect or Unproductive Wages
Leave Wages
Overtime
Fuel and Power
Rent & Taxes
Insurance
Factory Lighting
Supervision
Factory Stationery
Canteen
Welfare Expenses
Repairs
Grease and Oil
Works Salaries
Depreciation
-Plant & Machinery
-Factory Building
-Factory Furniture & other assets
Works Expenses
Gas & Water
Drawing Office Salaries
Technical officer/director’s salary
Laboratory Expenses
Works Telephone expenses
Internal Transport
Less Sale of Scrap
Add: Opening Stock of WIP
Less: Closing Stock of WIP
WORKS/FACTORY COST
Add: Office & Administrative Expenses
Office Salaries
Director’s fees/salaries
Office Rent and Rates
Office Stationery
Computer expenses
Printing
Sundry Office Expenses
Depreciation of Office building & other assets
Newspaper and Journals
Membership fees
Office Lighting
General Repair & Maintenance
Establishment Charges
Travelling Expenses
Conveyance
Postage & Courier
Legal Charges
Audit Fees
Professional fees
Telephone Expenses
Entertainment Expenses
COST OF PRODUCTION
Add: Opening Stock of Finished Goods
COST OF GOODS AVAILABLE FOR SALE
Less: Closing Stock of Finished Goods
COST OF GOODS SOLD
Add: Selling & Distribution Expenses
Advertising
Showroom Expenses
Cost of free Samples
Bad Debts
Salesmen’s salary and commission
Packing Expenses
Carriage Outward
Commission of Sales Agent
Counting House Salaries
Cost of Catalogues, Brochures and Pamphlets
Expenses of Delivery
Collection Expenses
Travelling Expenses of Salesmen
Cost of Tenders
Warehouse Expenses
Cost of mail deliveries
Warehouse Manager’s salaries
Sales Office Expenses
Depreciation and repairs of Delivery vehicles
COST OF SALES (or Total Costs)
PROFIT
SALES

It is important to keep in mind that there are certain items which are excluded for ascertaining costs. This is generally because of there financial nature and either no or very remote connection with the production process.

These are:

1.      Cash discount

2.      Interest paid

3.      Preliminary expenses written off

4.      Goodwill written off or raised

5.      Provision for taxation

6.      Provision for bad debts

7.      Transfer to reserve

8.      Donations

9.      Income tax paid

10. Dividend paid

11. Profit/Loss on sale of fixed assets

12. Damages and penalties

13. Pensions and gratuities

14. Discount on issue of shares/debentures

Questions/Illustrations:

1. Opening stock of raw material   : Rs.15,000/-; Closing Stock or raw material: Rs.35,000/- Purchases during the period: Rs.70,000. With the help of this information calculate the value of raw material consumed.

2. Find out the value of works cost with the help of following:

 Materials : Rs/40,000/-; Labour: Rs.30,000/-; Direct Expenses: Rs 15,000/-, Factory Overheads: Rs.35,000/-, Work-in-progress (opening): Rs.17,000/- and Work-in-progress (closing) Rs.7,000/-

3. Calculate Cost of Goods Sold with the help of following data:

Cost of production: Rs.85,000/-, Opening stock of finished goods: Rs.15,000/-, Closing stock of finished goods: Rs.25,000/-

4. Calculate figure of profit under following:

(a) Cost price: Rs.7,000/-, Profit: 20% of cost

(b) Cost price: Rs.7,000/-, Profit : 20% on sales

(c) Sales price: Rs.7,000/-, Profit : 20% on cost

5. With the help of given data prepare a cost sheet: Direct Labour: Rs.90,000/-, opening stock of raw material : Rs.30,000/-, General office & Admin expenses: Rs.32,000/- Closing Stock of finished goods: Rs.80,000/-, Manufacturing overheads: Rs.80,000/-, WIP(opening): Rs.50,000/-, Purchases of raw material: Rs.1,20,000/-, Selling expenses are 1/6 of cost of goods sold, Closing stock of raw material: Rs.25,000/-. The profit stood at Rs.60,400/-. You are also required to find out the profit percentage and sales value.

6. Prepare cost sheet from following:

Description	Amount (Rs.)
Opening stock of raw material	15,000
Sales
Factory Overheads	100% of direct wages
Material purchased	1,15,000
Closing stock of raw material	20,000
Office overheads	10% of works cost
Direct Expenses	15,000
Direct wages	30,000
Selling and Distribution expenses	@ 3/- unit
Opening Finished Goods   (2000 nos.)	26,500/-
Finished Goods produced (20000 nos)
Closing Finished Goods (3000 nos.)

Also find Selling price per unit assuming 20% margin on sales price/value. There was no closing or opening work-in-progress.

Q.7 In respect of a factory, the following particulars have been extracted for the year 2015:

  Cost of Material                  :Rs.6,00,000/-
  Wages                                 : Rs.5,00,000/-
  Factory Overheads              : Rs.3,00,000/-
  Administrative Overheads  : Rs.3,36,000/-
  Selling Charges                   : Rs.2,24,000/-
  Distribution Overheads       : Rs.1,40,000/-
   Profit                                  : 16% on sales
A work order is available in ensuing period, which will require Materials Rs.8,000/- and wages Rs.5,000/-. Following changes are also proposed/anticipated by management:
Rate of factory overheads has gone up by 20%, distribution charges have gone down by 10% and selling and administration charges gave gone each up by 15%. Factory overheads are recovered as a % of Direct wages. While remaining overheads are linked to Works cost.
You are required to work out the new price to be quoted by the management for the proposed work order if management wishes to earn 25% profit on cost.