by Cost Sheet is a statement, prepared at given intervals of time, which provides information regarding elements of cost incurred in production. It discloses the total cost as well as the cost per unit of the product manufactured during the given period. If it is desired to compare the costing results of a particular period with any of the preceding periods, comparative columns can be provided in the Cost Sheet.
The cost sheet is prepared to ascertain cost of product/job/operation or to give quotations or to determine tender price for supply of goods or providing service.
Cost sheet is a statement presenting the items entering into cost of products and services, analysed by their elements, functions and even by their behaviour. It is a statement prepared to show the different elements of cost.
A cost sheet may be defined as “a detailed statement of the elements of cost incurred in production, arranged in a logical order under different heads such as material, labour and overheads, prepared at short intervals of time”. Within the strict meaning of the term it does not include sale proceeds and profit earned. If these are included it is called as “Statement of Cost and Profit”.
Cost sheet reveals the details of total cost of the job, order or operation. It shows the total cost as well as different elements of the total cost and cost per unit. Thus, Cost Sheet is a statement which presents an assembly of the components of cost.
Cost sheet is a statement prepared to show the cost of production in an industry in terms of total and also in several stages. It also shows the cost at every stage in terms of total production and each unit. This can be prepared for any period of time such as a week, month, quarter year, half year or a year based on the requirement of the industry.
A cost sheet is an exercise in collection of information regarding all the costs incurred in the industry and arranging them in a certain order. The information required to prepare a cost sheet is gathered from several records in the organization.
Since a cost sheet is only a statement, it can be prepared in any format so as to suit the needs of the organization. A cost sheet is also called a statement of cost. A typical cost sheet does not include total sales and profit. If a cost sheet includes sales and profit, it is called a statement of cost and profit.
Cost Sheet: Definitions
All costs incurred or expected to be incurred during a given period are presented in the form of a statement, popularly called cost sheet or statement of cost or production statement.
The chartered Institute of Management Accountants, London defines cost sheet as “a document which provides for the assembly of the detailed cost of a cost centre or cost unit” The cost sheet is prepared with separate columns, one for the cost per unit and the other for the total cost.
Separate columns can also be provided for the current cost and cost of the previous periods. The cost sheet is generally prepared periodically, say weekly, monthly, quarterly and yearly. There is no prescribed format or form of the cost sheet. It’s from, contents and arrangement vary from firm to firm.
According to Harold J. Wheldon, “Cost sheets are prepared for the use of the management and consequently, they must include all the essential details which will assist the management in checking the efficiency of production.”
According to Walter W. Bigg, “The expenditure, which has been incurred upon production for a period, is extracted from the financial books and the store records, and out in a memorandum statement. If this statement is confined to the discloser of the cost of the units production during the period, it is termed cost sheet.”
Objectives of Cost Sheet
(1) It reveals the total cost and cost per unit of goods produced.
(2) It discovers the break-up of total cost into different elements of cost.
(3) It provides a comparative study of the cost of current period with that of the corresponding previous period.
(4) It acts as a guide to management in fixation of selling prices and quotation of tenders.
Cost Sheet Features
The basic features of cost sheet are as follows:
(i) This statement is usually prepared under the output costing method, where the object is to ascertain the per unit cost of production.
(ii) A cost sheet is prepared for a specified period of time, generally for a month, quarter, half year or year.
(iii) The cost sheet generally contains the following information:
(a) Period,
(b) Total Output,
(c) Cost of raw materials consumed,
(d) Cost of direct labour,
(e) Details of chargeable expenses
(f) Details of overheads namely factory, office and administration and selling and distribution, and
(g) Aggregate of elements of cost at various stages e.g., Prime Cost, Works Cost, Office Cost and Total Cost.
Cost Sheet Elements: Prime Cost, Gross Factory, Cost of Production, Cost of Goods Sold, Cost of Sales and Profit (with Formula)
Various elements of the cost sheet are given below:
Prime Cost:
Prime cost is the addition of all direct costs. It includes direct material cost, direct labour cost and other direct costs. Other direct expenses may include patterns, designs, power expenses etc.
One should remember that direct material cost mean amount of direct material consumed during the period which can be calculated or given below:
Material consumed: Opening stock of Raw material+ Purchases made during the year+ Carriage in words– Materials returned– Scrap of raw materials– Closing stock of raw material at end.
Gross Factory Cost:
Factory cost is obtained by adding factory related expenses to the direct costs.
Various factory related expenses are:
- Indirect materials like oil, lubricants
- Indirect labour like foreman, factory manager, clerks
- Factory lighting, heating, rent, insurance of factory building
- Repairs and maintenance of plants, machine tools, factory building
- Factory stationery, welfare expenses of the workers etc.
In addition to that adjustments in respect of cost of opening and closing WIP is also adjusted to calculate net factory/work cost as given below:
Net factory/work cost = Gross factory cost + Opening stock of WIP – Closing stock of WIP
WIP: WIP is that part of production at which same work has been done but it is still not complete. So WIP is semi-finished stock.
Cost of Production/Officer Costs:
Where office and administration expenses may include:
- Office salaries
- Rent, rate, taxes, depreciation of insurance of office building
- Lighting, heating of the office building
- Stationary, printing, telephone expenses and other expenses related to office building
- Director and management salaries.
Cost of Goods Sold:
Cost of production is adjusted with the value of opening and closing stock of finished goods to obtain value of cost of goods sold,
The value of opening stock is generally given in the question.
Closing stock (units) = Production during year + opening stock – Sales during year
Cost of Sales:
Various selling and distribution expenses are added to obtain cost of sales. Selling and distribution expenses may be fixed or variable in the nature.
Some examples of selling and distribution expenses are:
- Salesman salaries and commission
- Advertisement expenses
- Commission sales
- Warehouses rent, depreciation etc.
- Depreciation, maintenance of delivery vans
- Expenses relating to showrooms.
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