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. 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. Cost sheet is prepared on the basis of : 1. Historical Cost 2. Estimated Cost Historical Cost Historical Cost sheet is prepared on the basis of actual cost incurred.
A statement of cost prepared after incurring the actual cost is called Historical Cost Sheet. Estimated Cost Estimated cost sheet is prepared on the basis of estimated cost. The statement prepared before the commencement of production is called estimated cost sheet. Such cost sheet is useful in quoting the tender price of a job or a contract. 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. 29. 2 COMPONENTS OF TOTAL COST 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. Cost sheet is a statement of cost. In other words, when costing information are set out in the form of a statement, it is called cost sheet. It is usually adopted when there is only one product is produced and all costs are incurred for that product only. Cost sheet may be prepared for a week, monthly, quarterly or yearly indicating various components of cost as prime cost, works cost, cost of production, cost of goods sold, total cost and also profitability on a production.
The preparation of cost sheet depends on the cost data provided by cost accounting. Due to differences in the nature of cost data there are three different cost sheet Performa may be used. (a) Cost sheet with break up cost: These types of cost sheet contains two column as total cost, cost per unit of out put. A specimen of cost sheet with imaginary figure. (b) Cost Sheet with treatment of Stock: This type of cost sheet is maintained in case of manufacturing concern. Generally there are three types of stock as (1) Stock of Raw material, (2) Stock of work in progress and (3) Stock of finished goods.
The treatment of stock in cost sheet has been given in a separate Performa. (c) Estimated cost sheet or price quotation: Price quotation means quoting the minimum price for obtaining a specific order. The quotation is send in the form or estimated cost sheet having one column. In estimated cost sheet all elements of cost and overhead expenses are calculated in the following manner. * Estimated direct material * Estimated labor cost * Estimated overheads Elements of Cost Raw materials are converted into finished products by a manufacturing concern with the help of labor, plants etc.
The elements that constitute the cost of manufacturing are known as elements of cost. The elements of cost include the following: •Material •Labor •Expenses Each of these elements is again subdivided into direct and indirect material. Direct material, direct labor and direct expenses are those which can be traced in relationship with a particular process, job, operation or product. Indirect material, indirect labor and indirect expenses are those which are of general nature and cannot be traced in relationship with a particular process, operation, job or product.
Direct material Direct labor together constitute prime cost Direct expenses Indirect material Indirect labor of the factory together constitute factory (or works) Indirect expenses Prime cost + Factory (or works) overhead = Factory cost or works cost Factory cost + Administration overhead = Cost of production Cost of production+ Selling and distribution overhead = Total cost or cost of sales While working out the cost of sales, following details are to be kept in mind