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Fundamentals of Cost Accounting

Format of Cost Sheet

A cost sheet is a statement prepared at periodical

intervals of time, which accumulates all the

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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 "
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the setting of prices on similar products in the
future. We shall study the Cost Sheet Format in
detail.

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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:

1. Total cost and cost per unit for a product.

2. The various elements of cost such as

prime cost, factory cost, production cost,
cost of goods sold, total cost, etc.

3. Percentage of every expenditure to the

total cost.

4. Compare the cost of any two periods and

ascertain the inefficiencies if any.

5. Information to management for cost

control

6. 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

1. to produce or buy a component,

2. what price of goods to quote in the

tender,

3. whether to retain or replace an existing

machine,

4. how to reduce costs and maximize profit.

5. 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

 AMOUNT

  PARTICULARS  AMOUNT

 TOTAL

  DIRECT MATERIAL-PURCHASED

ADD OP STOCK OF RAW MATERIAL

LESS CL STOCK OF RAW MATERIAL

  MATERIAL CONSUMED

ADD DIRECT WAGES

ADD DIRECT EXPENSES

  PRIME COST

ADD WORKS OR FACTORY OVERHEADS

   Factory Overheads

ADD OP STOCK OF WIP

LESS CL STOCK OF WIP

  WORK COST

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

ADD PROFIT MARGIN

SELLING PRICE

Method of Preparation of Cost Sheet

Prime Cost =  Direct Material Consumed + Direct Labour + Direct

Expenses

Step I
Direct Material= Material Purchased + Opening stock of
raw material-Closing stock of raw material.

 Works Cost = Prime Cost + Factory Overheads (Indirect Material +

Step II Indirect Labour + Indirect Expenses)+opening Work in progress-

Closing Work in progress

Cost of Production = Works Cost + Office and Administration

Step III
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.

Particulars Amount

Direct material-
80000
purchased

Direct material -Opening

20000
stock

Direct material -Closing

25000
Stock

Productive wages  22,000

Direct Expenses  5,000

Consumable stores 4000

Factory manager salary 15000

Unproductive wages 7000

 Factory Overheads  12,000

 Work-in-progress:

Opening stock 13,000

 Closing stock 7,000

Office and administration

28,000
overheads

Opening stock  of
5000
finished goods

Closing stock of
10000
finished goods

Selling and distribution

33,000
overheads

Company desires a margin of 20% profit on the

cost of sales

Ans.

COST SHEET  FOR THE MONTH OF__________ FOR XYZ.

 AMOUNT

  PARTICULARS  AMOUNT

 TOTAL

 
  DIRECT MATERIAL-PURCHASED  
80,000.00

 
ADD OP STOCK OF RAW MATERIAL  
20,000.00

 
LESS CL STOCK OF RAW MATERIAL                   –  
25,000.00

 
  MATERIAL CONSUMED     75,000.00
75,000.00

ADD DIRECT WAGES       22,000.00

ADD DIRECT EXPENSES         5,000.00

  PRIME COST     102,000.00

ADD WORKS OR FACTORY OVERHEADS    

   
  Consumable stores  
4,000.00

 
  Factory manager salary  
15,000.00

   
  Unproductive wages  
7,000.00

 
   Factory Overheads     38,000.00
12,000.00

        140,000.00

 
ADD OP STOCK OF WIP  
13,000.00

   
LESS CL STOCK OF WIP       6,000.00
7,000.00

  WORK COST     146,000.00

ADMINISTRATION OR OFFICE
ADD       28,000.00
OVERHEADS

  COST OF PRODUCTION     174,000.00

SELLING AND DISTRIBUTION  

ADD     33,000.00
OVERHEADS 33,000.00

        207,000.00

   
ADD OP STOCK OF FG  
5,000.00

 
LESS CL STOCK OF FG                   –  
10,000.00

  COST OF SALES     202,000.00

PROFIT MARGIN @ 20% ON COST OF

ADD       40,400.00
SALES

  SELLING PRICE     242,400.00

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 BROWSE
Fundamentals of Cost Accounting

Objectives of Cost Accounting

Meaning and Definition of Management

Accounting

Format of Cost Sheet

Cost Centre and Cost Unit

Classification of Costs

Methods of Costing

Elements of Cost

Cost Control and Cost Reduction

Advantages of Cost Accounting

Techniques of Costing

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