Cost Sheet Summary

SUMMARY of COST SHEET
Marks Weightage 12-15
Cost Sheet
Functional Head of Costs in Format of Cost Advantages of

Classification Cost Sheet Sheet Cost Sheet
COST SHEET/STATEMENT
Particulars Total Cost Cost perunit (`)
(`)
1. Direct materials consumed:
Opening Stock of Raw Material xxx
Add: Additions/ Purchases xxx
Less: Closing stock of Raw Material xxx
xxx
2. Direct employee (labour) cost xxx
3. Direct expenses xxx
4. Prime Cost (1+2+3) xxx
5. Add: Works/ Factory Overheads xxx
6. Gross Works Cost (4+5) xxx
7. Add: Opening Work in Process xxx
8. Less: Closing Work in Process (xxx)
9. Works/ Factory Cost (6+7-8) xxx
10. Add: Quality Control Cost xxx
11. Add: Research and Development Cost xxx
12. Add: Administrative Overheads (relating xxx
to production activity)
13. Less: Credit for Recoveries/Scrap/By- (xxx)
Products/ misc. income
14. Add: Packing cost (primary) xxx
15. Cost of Production (9+10+11+12-13+14) xxx
16. Add: Opening stock of finished goods xxx
17. Less: Closing stock of finished goods (xxx)
18. Cost of Goods Sold (15+16-17) xxx
19. Add: Administrative Overheads (General) xxx
20. Add: Marketing Overheads :
Selling Overheads xxx
Distribution Overheads xxx
21. Cost of Sales (18+19+20) xxx
1. Description:
Cost Sheet: A Cost Sheet or Cost Statement is “a document which provides a detailed cost
information. In a typical cost sheet, cost information are presented on the basis of functional
classification. However, other classification may also be adopted as per the requirements of users
of the information.
Direct Expenses: Expenses other than direct material cost and direct employee cost, which are
incurred to manufacture a product or for provision of service and can be directly traced in an
economically feasible manner to a cost object.
Prime Cost: Prime cost represents the total of direct materials costs, direct employee (labour)
costs and direct expenses.
Cost of Production: Cost of production consists of cost of materials consumed, direct employee
(labour) costs, direct expenses, production overheads, quality control costs, primary packing cost,
R&D and administration cost relating to production.
Primary Packing Cost: Cost incurred on packing materials which are essential to hold and
preserve the product for further processing or its useby consumer.
Secondary Packing Cost: Cost incurred on packing materials which is used to store, transport,
and promote the product.
Cost of goods sold: Cost of production adjusted with opening and closing inventories of finished
goods.
Administrative overheads: Cost incurred of all activities relating to general management and
administration of an entity.
Marketing overheads: Marketing overheads comprise of selling overheads and distribution

overheads.
Selling Overheads: Expenses related to sale of products or services.
Distribution overheads: Costs incurred in handling a product or service from the time it is ready
to dispatch or delivery until it reaches the ultimate consumer.
Cost of Sales: It is the total cost of a product incurred to make the product available to the
customer or consumer. It is the aggregate of cost of goods sold, administrative costs, marketing
costs and other separate line items of cost which could not form part of cost of production.
2. FUNCTIONAL CLASSIFICATION OF ELEMENTS OF COST
Under this classification, costs are divided according to the function for which they have been
incurred. The following are the classification of costs based on functions:
 Direct Material Cost
 Direct Employee (labour) Cost
 Direct Expenses
 Production/ Manufacturing Overheads
 Administration Overheads
 Selling Overheads
 Distribution Overheads
 Research and Development costs etc.
3. COST HEADS IN A COST SHEET

The costs as classified on the basis of functions are grouped into the following cost heads in
a cost sheet:
 Prime Cost
 Cost of Production
 Cost of Goods Sold
 Cost of Sales
4. PRIME COST COMPONENT
Prime cost represents the total of direct materials costs, direct employee (labour) costs and
direct expenses.
4.1 Direct Material Cost:

It is the cost of direct material consumed. The cost of direct material consumed will include:-
 Cost of material;
 Freight inwards;
 Insurance and other expenditure directly attributable to procurement;
 Trade discounts or rebates (to be deducted);
 Duties & Taxes (if input tax credit is not available/ availed) etc.
4.2 Direct Labour Cost:

It is the total of payment made to the employees who are engaged in the production of goods
and provision of services. Employee cost is also known as labour cost; it includes the following:
 Wages and salary;
 Allowances and incentives;
 Payment for overtimes;
 Bonus/ ex-gratia;
 Employer’s contribution to welfare funds such as Provident fund and other similar funds;
 Other benefits (medical, leave with pay, free or subsidised food, leave travel concession and
provisions for retirement benefits) etc.
4.3 Direct Expense:

Expenses other than direct material cost and direct employee cost, which are incurred to
manufacture a product or for provision of service and can be directly traced in an economically
feasible manner to a costobject. The following costs are examples for direct expenses:
 Cost of utilities such as power & fuel, steam etc.;
 Royalty paid/ payable for production or provision of service;
 Hire charges paid for hiring specific equipment;
 Fee for technical assistance and know-how;
 Amortised cost of moulds, patterns, patents etc.;
 Cost for product/ service specific design or drawing;
 Cost of product/ service specific software;
 Other expenses which are directly related with the production of goods or provision of
service.
5. COST OF PRODUCTION COMPONENT

In a conventional cost sheet, this item of cost can be seen. It is the total ofprime cost and
factory related costs and overheads.
5.1 Factory Overhead:

It is also known as works/production/ manufacturing overheads. It includes the following indirect
costs:
 Consumable stores and spares;
 Depreciation of plant and machinery, factory building etc.
 Lease rent of production assets;
 Repair and maintenance of plant and machinery, factory building etc.
 Indirect employees cost related with production activities;
 Drawing and Designing department cost;
 Insurance of plant and machinery, factory building, stock of raw material &WIP etc.
 Amortized cost of jigs, fixtures, tooling etc.
 Service department cost such as Tool Room, Engineering & Maintenance,Pollution Control
etc.
5.2 Stock of Work-in-progress:

The cost of opening and closing stock of work-in-process (WIP) is adjusted to arrive at factory/
works cost. The WIP stock is valued on the basis of percentage of completion in respect of
each element of cost.
5.3 Quality Control Cost:

This is the cost of resources consumed towards quality control procedures.
5.4 Research and Development Cost:

It includes only those research and development related cost which is incurred for the
improvement of process, system, product or services.
5.5 Administrative Overhead (Production):

It includes only those administration overheads which are related to production. The general
administration overheadis not included in production cost.
5.6 Credit for recoveries:

The realised or realisable value of scrap or waste is deducted as it reduces the cost of production.
5.7 Joint products and By-products:

Joint costs are allocated between/among the products on a rational and consistent basis. In case
of by- products, the net realisable value of by-products is deducted from the cost ofproduction.
5.8 Packing Cost (primary):

Packing material which is essential to hold and preserve the product for its use by the customer.
6. COST OF SALES COMPONENT

It is the total cost of a product incurred to make the product available to the customer or
consumer.
6.1 Administrative Overhead (General):

It is the cost related with general administration of the entity. It includes the followings:
 Depreciation and maintenance of, building, furniture etc. of corporate or general
management.
 Salary of administrative employees, accountants, directors, secretaries etc.
 Rent, rates & taxes, insurance, lighting, office expenses etc.
 Indirect materials- printing and stationery, office supplies etc.
 Legal charges, audit fees, corporate office expenses like directors’ sitting fees,
remuneration and commission, meeting expenses etc
6.2 Selling Overhead:

It is the cost related with sale of products or services.It includes the following costs:
 Salary and wages related with sales department and employees directly related with
selling of goods.
 Rent, depreciation, maintenance and other cost related with salesdepartment.
 Cost of advertisement, maintenance of website for online sales,market research etc.
6.3 Packing Cost (Secondary):

Packing material that enables to store, transport, inform the customer, promote and otherwise
make the product marketable.
6.4 Distribution Overhead:

It includes the cost related with making thegoods available to the customers. The costs are
 Salary and wages of employees engaged in distribution of goods.
 Transportation and insurance costs related with distribution.
 Depreciation, hire charges, maintenance and other operating costs related with distribution
vehicles etc.
7. Treatment of various items of cost in Cost sheet/statement
(i) Abnormal costs- Any abnormal cost, where it is material and quantifiable, shall not form
part of cost of production or acquisition or supply of goods or provision of service.
Examples of abnormal costs are:
(a) Cost pertaining to or arising out of a pandemic e.g. COVID-19
(b) Cost associated with employees due to sudden lockdown.
(ii) Subsidy/ Grant/ Incentives- Any such type of payment received/ receivable are
reduced from the cost objects to which such amount pertains.
(iii) Penalty, fine, damages, and demurrage - These types of expenses are not form part of
cost.
(iv) Interest and other finance costs- Interest, including any payment in the nature of
interest for use of non- equity funds and incidental cost that an entity incurs in
arranging those funds. Interest and finance charges are not included in cost of production.
8. Advantage of Cost Sheet of Cost Statements

The main advantages of a Cost Sheet are as follows:
 It provides the total cost figure as well as cost per unit of production.
 It helps in cost comparison.
 It facilitates the preparation of cost estimates required for submittingtenders.
 It provides sufficient help in arriving at the figure of selling price.
 It facilitates cost control by disclosing operational efficiency.

Cost Sheet Summary

Uploaded by

Copyright:

Available Formats

Cost Sheet Summary

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Cost Sheet Summary

Uploaded by

Copyright:

Available Formats

SUMMARY of COST SHEET

Marks Weightage 12-15

Functional Head of Costs in Format of Cost Advantages of

Marketing overheads: Marketing overheads comprise of selling overheads and distribution

Selling Overheads: Expenses related to sale of products or services.

2. FUNCTIONAL CLASSIFICATION OF ELEMENTS OF COST

3. COST HEADS IN A COST SHEET

4. PRIME COST COMPONENT

4.1 Direct Material Cost:

4.2 Direct Labour Cost:

4.3 Direct Expense:

5. COST OF PRODUCTION COMPONENT

5.1 Factory Overhead:

5.2 Stock of Work-in-progress:

5.3 Quality Control Cost:

5.4 Research and Development Cost:

5.5 Administrative Overhead (Production):

5.6 Credit for recoveries:

5.7 Joint products and By-products:

5.8 Packing Cost (primary):

6. COST OF SALES COMPONENT

6.1 Administrative Overhead (General):

6.2 Selling Overhead:

6.3 Packing Cost (Secondary):

6.4 Distribution Overhead:

7. Treatment of various items of cost in Cost sheet/statement

(b) Cost associated with employees due to sudden lockdown.

8. Advantage of Cost Sheet of Cost Statements

You might also like