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EEC Unit5-Cost Sheet

The document discusses the meaning, importance, and components of a cost sheet. It explains that a cost sheet is a statement that classifies and analyzes the various cost components of a product. It helps ascertain costs, fix selling prices, facilitate control of costs and managerial decisions. The key components of a cost sheet include prime cost, factory cost, adjustments for work-in-progress, total cost of production, and cost of goods sold. Preparing an accurate cost sheet is important for effective cost management of a manufacturing business.

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Sankara nath
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78 views

EEC Unit5-Cost Sheet

The document discusses the meaning, importance, and components of a cost sheet. It explains that a cost sheet is a statement that classifies and analyzes the various cost components of a product. It helps ascertain costs, fix selling prices, facilitate control of costs and managerial decisions. The key components of a cost sheet include prime cost, factory cost, adjustments for work-in-progress, total cost of production, and cost of goods sold. Preparing an accurate cost sheet is important for effective cost management of a manufacturing business.

Uploaded by

Sankara nath
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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COST SHEET

You are running a factory which manufactures electronic toys. You incur expenses on raw
material, labour and other expenses which can be directly attibuted to cost and which cannot
be directly attributed but are incurred upto their sales. You need to know the composition of
cost at different stages. This will help you in the analysis of cost of a product so that same can
be used for its proper management.

COST SHEET : MEANING AND ITS IMPORTANCE

Cost sheet is a statement, which shows various components of total cost of a product. It
classifies and analyses the components of cost of a product. Previous periods data is given in
the cost sheet for comparative study. It is a statement which shows per unit cost in addition to
Total Cost. Selling price is ascertained with the help of cost sheet. The details of total cost
presented in the form of a statement is termed as Cost sheet.

Importance of Cost Sheet


The importance of cost sheet is as follows:

Cost ascertainment
The main objective of the cost sheet is to ascertain the cost of a product. Cost sheet helps in
ascertainment of cost for the purpose of determining cost after they are incurred. It also helps
to ascertain the actual cost or estimated cost of a Job.

Fixation of selling price


To fix the selling price of a product or service, it is essential to prepare the cost sheet. It helps
in fixing selling price of a product or service by providing detailed information of the cost.

Help in cost control


For controlling the cost of a product it is necessary for every manufacturing unit to prepare a cost
sheet. Estimated cost sheet helps in the control of material cost, labour cost and overheads cost at
every point of production.

Facilitates managerial decisions


It helps in taking important decisions by the management such as: whether to produce or buy
a component, what prices of goods are to be quoted in the tender, whether to retain or replace
an existing machine etc.
COMPONENTS OF TOTAL COST(STEPS IN PREPARING A COST SHEET)

The Components of cost are shown in the classified and analytical form in the cost sheet.
Components of total cost are as follows:

Prime Cost
It consists of direct material, direct wages and direct expenses. In other words “Prime cost
represents the aggregate of cost of material consumed, productive wages, and direct
expenses”. It is also known as basic, first, flat or direct cost of a product.
Prime Cost = Direct material + Direct Wages + Direct expenses

Direct material means cost of raw material used or consumed in production. It is not
necessary that all the material purchased in a particular period is used in production. There is
some stock of raw material in balance at opening and closing of the period. Hence, it is
necessary that the cost of opening and closing stock of material is adjusted in the material
purchased. Opening stock of material is added and closing stock of raw material is deducted
in the material purchased and we get material consumed or used in production of a product. It
is calculated as :
Material Consumed = Material purchased + Opening stock of material
– Closing stock of material.

Factory Cost
In addition to prime cost it includes works or factory overheads. Factory overheads consist of
cost of indirect material, indirect wages, and indirect expenses incurred in the factory.
Factory cost is also known as works cost, production or manufacturing cost.

Factory Cost = Prime cost + Factory overheads

Adjustment for stock of work-in-progress


In the process of production, some units remain to be completed at the end of a period. These
incomplete units are known as work-in-progress. Normally, the cost of incomplete units
include direct material, direct Labour, direct expenses, and average factory overheads. Hence,
at the time of computing factory cost, it is necessary to make adjustment of opening and
closing stock of work in progress to arrive at the net Factory cost/works cost.

TOTAL COST AND COST SHEET

If office and administrative overheads are added to factory or works cost, total cost of
production is arrived at. Hence the total cost of production is calculated as:

Total Cost of production = Factory Cost + office and administration overheads

Cost of goods sold


It is not necessary, that all the goods produced in a period are sold in the same period. There
is stock of finished goods in the opening and at the end of the period. The cost of opening
stock of finished goods is added in the total cost of production in the current period and cost
of closing stock of finished goods is deducted. The cost of goods sold is calculated as:
Cost of goods sold = Total cost of production + Opening
stock of Finished goods – Closing stock of finished goods

Example

From the following information calculate the total cost of production

Rs.

Direct material 90,000

Direct Labour 32,000

Direct Expenses 9,000

Factory overheads 25,000

Office and administration overheads 18,000

Solution:

Statement showing total cost of production


Details Amount
(Rs.)
Direct Material: Material Consumed 90,000
Direct Labour: Productive wages 32,000
Direct Expenses 9,000
PRIME COST 1,31,000
Factory overheads 25,000
FACTORY COST 1,56,000
Office and administration overheads 18,000
TOTAL COST OF PRODUCTION 1,74,000

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