Dr.
Anushka Verma
Email: [email protected]
Phone: +91 8700485037 (WhatsApp Only)
• Cost sheet is a statement, which shows various components of total cost of a
particular product.
• Cost sheet is prepared on the basis of: Historical Cost & Estimated Cost
• The importance of cost sheet is: Cost ascertainment, Fixation of selling price, Help
in cost control, Facilitates managerial decisions
Components of Total Cost
1. Prime Cost = Direct material + Direct Wages + Direct expenses;
2. Factory Cost = Prime cost + Factory overheads
3. Cost of production = Factory Cost + office and administration overheads
4. Cost of production of goods sold = Cost of Production + Opening stock of
Finished’ goods – closing stock of finished goods
5. Total Cost = Cost of Production of goods sold + Selling and distribution
overheads
6. Sales = Total Cost + Profit
The various components of cost explained above are presented in the form of a
statement
• All the costs are classified into Direct Costs or Indirect Costs.
• Items of costs are arranged in the order of first, Material then Labor and in the last
expenses.
• All Direct Costs are also termed as Prime Costs.
• Then all indirect costs also termed as overheads are recorded.
• In case of indirect costs, the items are broadly categorised into three main groups:
1. Works/Factory Cost
2. Office and Administration Cost
3. Selling and Distribution Cost
• Finance expenses are not to be considered in the costs sheet. E.g., Interest paid,
Bad debts, etc.
• Non-operating incomes and non-operating expenses are not to be considered in
the cost sheet. E.g., Profit or Loss on Sale of Fixed Assets, Fictitious Assets written-
off, etc.
The following items are of financial nature and thus not included while preparing a cost
sheet:
1. Cash discount (Part of Sales) 7. Goodwill written off (unrelated to
production)
2. Transfer to reserves (related to
retained earnings) 8. Dividend paid (financial transaction)
3. Interest paid (financial expenses) 9. Provision for taxation (financial
transaction)
4. Donations (unrelated to production)
10. Profit/ loss on sale of fixed assets
5. Preliminary expenses written off (financial transaction)
(incurred during setup or
incorporation) 11. Provision for bad debts (financial
transaction)
6. Income-tax paid (unrelated to
production) 12. Damages payable at law, etc. (legal
obligations)
The following information has been extracted from the P&L account of a
manufacturer for the past two years.
2021 2022
Finished products in hand
At the beginning of the year 1,10,000 2,10,000
At the end of the year 2,10,000 3,55,000
Materials used 2,30,000 3,00,000
Direct labour 90,000 1,50,000
Indirect labour 17,000 20,000
Fuel and power 20,000 34,500
Depreciation of plant and equipment 11,000 10,000
Repairs and maintenance 6,000 12,500
Sundry manufacturing expenses 6,000 5,600
Sales 4,20,000 6,10,000
Prepare a comparative cost sheet and show percentage of profit on sales.
Cost sheet for the periods ending 2021 and 2022
Particulars 2021 2022
Direct Materials 230000 300000
Direct wages 90000 150000
I. Prime Cost 320000 450000
Add: Factory Overheads:
Indirect labour 17000 20000
Fuel and power 20000 34500
Depreciation of plant and equipment 11000 10000
Repairs and maintenance 6000 12500
Sundry manufacturing expenses 6000 5600
II. Factory or Works Cost 380000 532600
Add: Opening stock of finished goods 110000 210000
Less: Closing stock of finished goods -210000 -355000
III. Cost of goods sold 280000 387600
Profit 33.3333333 36.45901639
Sales 420000 610000
250
Drawing office salaries are interpreted as salary paid for
drawing the production chart or for the purpose of production
plan or production process that must carried out and hence
such salary should be recorded as factory overheads.
