Module 2

Cost sheet: It is a statement which is prepared usually to present the detailed cost of total production during the period. It provides information relating to cost per unit at different stages of the total cost of production or at different stages of completion of the product. The detail 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: a. 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. b. 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. c. 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, labor cost and overheads cost at every point of production. d. 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. PURPOSE OF COST SHEET
1. It gives the breakup of total cost under different elements. 2. It shows total cost as well as cost per unit. 3. It helps in comparison with previous years. 4. It facilities preparation of tenders or quotations.

5. It enables the management to fix up selling price.

6. It controls cost.

COST SHEET FORMAT M/S_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Cost sheet for the period _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ __ _ _ _ Qty manufactured: _____________ Qty sold: ______________ Particulars Total Cost Amount per unit Direct materials *** Opening Stock of Raw Material *** Add: Purchase of Raw materials *** Add: Carriage inwards *** Add: Octroi, customs duty and other expenses on purchases *** Less: Closing stock of Raw Materials *** Raw Materials Consumed *** Direct Wages (Labor) *** Direct expenses or chargeable expenses: *** Cost of special moulds, designs and pattern *** Patents and royalties *** Licence fee

Prime cost (1) Add :- Factory Over Heads: Indirect materials Leave wages Overtime premium Haulage Loose tools Technical directors fees Indirect Wages Factory Rent and rates Factory Power and fuel Lighting and heating (factory) Repairs and maintenance Cleaning Drawing office expenses Cost of research and experiments

*** *** *** *** *** *** *** *** *** *** *** *** *** *** ***

**

Dep on factory plant Works stationary Canteen and Welfare expenses Insurance- fixed assets etc Works managers salary Less: Scrap Works cost Incurred Add: Opening Stock of WIP Less: Closing Stock of WIP Works cost (2) Add:- Administration or office overheads:Office Rent and rates General expenses Subscription of trade journals Salaries ( office) Lighting and heating Insurance on office building and equipment Telephone and postages Printing and stationary Establishment charges Depreciation on office equipment and furniture Legal expenses General Charges Audit Fees Bank Charges Counting house Salary Other Office Expenses Cost of Production (3) Add: Opening stock of Finished Goods Less: Closing stock of Finished Goods Cost of Goods Sold Add:- Selling and Distribution Overheads:Showroom rents and rates Packing expenses Lighting and heating Sales printing and stationary Depreciation and expenses of delivery van Debt collection expenses Sales man Commission Carriage outwards Collection charges

*** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** ** ** ** **

Cost of catalogues Samples and other free gifts Sales man salary Travelling Expenses of salesman Advertisement Delivery man expenses Bad Debts Cost of Sales (5) Profit (balancing figure) Sales

*** *** *** *** *** *** *** *** *** *** ** ** **

Notes:-Items of expenses which are an appropriation of profit should not form a part of the costs of a product. Examples are: a. Income tax b. Dividends to share holders c. Commission to managing directors( out of profits) d. Capital loss e. Interest on loan f. Donations g. Capital expenditure h. Discount on shares and debentures i. Underwriting commission j. Writing off goodwill

Job costing: Meaning: job costing is a method applied to determine the cost of a specific jobs or lots of production generally manufactured according to customers specification. Suitable in a Batch production Suitable in a MASS production

Environment

Materials required for Materials needed job varies from order are same for every Materials to order order leading to bulk purchases opportunity Unskilled workers who carry out specific tasks repeatedly which form small part of the production process.

Direct Labor

Skilled labor varies according to changing specification

Production runs

Each production run is relatively short as the production is carried out for specific orders. Varies from order to order

Big quantities are produced leading to longer production runs

Cost Per unit

Remains the same for all orders