Cost Sheet MODULE - 6B

Elementary Cost Accounting

29 Notes

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. In this lesson you will learn about
cost sheet and its various components.

OBJECTIVES
After studying this lesson, you will be able to:
state the meaning and type of Cost Sheet;
state the importance of Cost Sheet;
explain the components of total cost;
prepare the cost sheet as per format.

29.1 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. Cost sheet
is prepared on the basis of :
1. Historical Cost 2. Estimated Cost
MODULE - 6B
Elementary Cost Accounting
Historical Cost
121 ACCOUNTANCY ACCOUNTANCY 121
 Cost Sheet
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.

Notes
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.

122 ACCOUNTANCY ACCOUNTANCY 122

Cost Sheet MODULE - 6B
Elementary Cost Accounting

INTEXT QUESTIONS 29.1

I. State the meaning of cost sheet.
................................................................................................................ Notes
................................................................................................................
II. Fill in the blanks with suitable words:
(i) Cost sheet classifies and analyses the ............... of cost of a
product.
(ii) ............... is ascertained with the help of cost sheet.
(iii) ............... Cost sheet is prepared on the basis of actual cost
incurred.
(iv) Cost sheet also helps to ascertain the actual cost or ...............
cost of a job.
(v) Cost sheet helps in fixing ............... of products or services by
providing detailed cost information.
(vi) ............... cost sheet helps in the control of material cost of a
product/service.

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.
 MODULE - 6B Cost Sheet
Elementary Cost Accounting
Illustration 1
Calculate prime cost from the following particulars for a production unit:
Rs.
Cost of material purchased 30,000
Notes
Opening stock of material 6,000
Closing stock of material 4,000
Wages paid 3,000
Rent of hire of a special machine for production 5,000
Solution:
Statement showing Prime Cost
Details Amount
(Rs.)
Direct Material: Material Consumed
Opening stock of material 6,000
Add : Material Purchased 30,000
Material available for consumption 36,000
Less : Closing stock of material 4,000
Material consumed
Direct Labour : Wages
Direct Expenses: Rent of hire a special machine
Prime cost

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

 MODULE
Cost Sheet - 6B MODULE - 6B
Cost Sheet
Elementary Cost Accounting Elementary Cost Accounting
Illustration 2
Calculate factory cost from the following particulars:

Material consumed
Notes
Productive wages
Direct Expenses
Consumable stores
Oil grease/Lubricating
Salary of a factory manager
Unproductive wages
Factory rent
Repair and Depreciation on Machine

Solution:
Statement showing Factory cost
Details

Direct Material: Material Consumed Direct Labour: Productive wages Direct Expenses
Prime cost
Add : Factory overheads
Indirect Material:
Consumable stores 2,000
Oil grease/lubricants 500
Indirect Labour:
Unproductive wages 1,000
Salary of a factory Manager 6,000
Indirect Expenses:
Factory rent 2,000
Repair and Depreciation on Machine 600
Factory cost

125 ACCOUNTANCY ACCOUNTANCY 125

 MODULE
Cost Sheet - 6B MODULE - 6B
Cost Sheet
Elementary Cost Accounting Elementary Cost Accounting
Adjustment for stock of work-in-progress
Notes 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.

Illustration 3
From the following information calculate the works cost.
Rs.
Direct material
Direct Labour
Direct Expenses
Factory overheads
Work-in-progress: Opening stock
Closing stock

Solution:
Statement showing Factory cost

Details

Direct Material: Material Consumed

Direct Labour: Productive wages
Direct Expenses
Prime cost
Factory overheads
Factory Cost (Gross)
Add: Opening stock of work-in-progress

Less: Closing stock of work-in-progress

Works or Factory cost (Net)

126 ACCOUNTANCY ACCOUNTANCY 126

 INTEXT QUESTIONS 29.2
Fill in the blanks with suitable words:
Notes
(i) The Component of cost shown in the ................ and ................ form
is the cost sheet.

(ii) Prime cost is also known as ................ first, flat or ................ cost of
a job.

(iii) Material Consumed = Material purchased + ................ – Closing

stock of material.

(iv) Factory cost is also known as works cost, ................ or manufacturing

cost.

(v) Some units are not completed in process, they are known as
................

29.3 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

Illustration 4
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

 MODULE
Cost Sheet - 6B MODULE - 6B
Cost Sheet
Elementary Cost Accounting Elementary Cost Accounting
Solution:
Statement showing total cost of production

Details
Notes
Direct Material: Material Consumed Direct Labour: Productive wages Direct
PRIME COST Factory overheads
FACTORY COST
Office and administration overheads
TOTAL COST OF PRODUCTION

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

Illustration 5
From the following information calculate the cost of goods sold.
Rs.
Total Cost of Production 1,22,000
Opening stock of finished goods 12,000
Closing stock of finished goods 16,000

Solution:
Cost of goods sold = Cost of Production + Opening stock of Finished
goods - closing stock of Finished goods
Cost of goods sold = Rs.1,22,000 + 12,000 – 16,000 = Rs.1,18,000
Total Cost i.e, Cost of Sales
If selling and distribution overheads are added to the total cost of
production, total cost is arrived at. This cost is also termed as cost of Sales.
Hence the total cost is calculated as:
Total Cost = Cost of Goods sold + Selling and distribution overheads
 MODULE
Cost Sheet - 6B MODULE - 6B
Cost Sheet
Elementary Cost Accounting Elementary Cost Accounting
Illustration 6
From the following information calculate the total cost.
Rs.
Direct material 1,60,000
Direct Labour 52,000 Notes
Direct Expenses 19,000
Factory overheads 45,000
Office and administration overheads 28,000
Selling and distribution overheads 33,000

Solution:
Statement showing total cost
Details

Direct Material: Direct Labour: Direct Expenses

PRIME COST Factory overheads
FACTORY COST
Office and administration overheads
TOTAL COST OF PRODUCTION Selling and distribution overheads
Total cost = cost of sales

Sales
If the profit margin is added to the total cost, sales are arrived at. Excess
of sales over total cost is termed as profit. When total cost exceeds sales,
it is termed as Loss.
Sales = Total Cost + Profit
 Sometimes profit is calculated on the basis of given information in
percentage of cost or sales. In such a situation, the amount is assumed 100
in which the percentage is calculated. Then the Profit is calculated in the
following ways:

Notes Case 1

If Cost is Rs.10,000 and profit on cost 10%. Assume the cost is Rs.100 and
profit on cost is Rs.10. Hence Profit on cost of Rs.10,000 is

10,000 × 10/100 = Rs.1,000

Thus the sales value is Rs 11000 (10,000 + 1000)

Case 2

If Cost is Rs.10,800 and profit on sales price is 10%. Assume sales price
is Rs.100. cost price is Rs.90 [i.e. Rs.100 – Rs.10]. When profit on cost
of Rs.90 is Rs.10. Hence profit on cost of Rs.10,800 is

10,800 × 10/90 = Rs.1,200

10,800 + 1200 = 12,000 sales value

Case 3

If sales price is Rs.12,100 and profit on cost is 10%. Assume Cost price
is Rs.100. Sales price is Rs.110 [i.e.100 + 10]. If sales price is Rs.110,
profit is Rs.10. Profit on sales price of Rs.12,100 is
12,100 × 10/110 = Rs.1,100 profit

Illustration 7
From the following information, calculate the value of goods sold.

Rs.

Total Cost of Production 1,45,000

Opening stock of finished goods 22,000

Closing stock of finished goods 6,000

Selling and distribution overheads 25,000

Profit 22,000
 MODULE
Cost Sheet - 6B MODULE - 6B
Cost Sheet
Elementary Cost Accounting Elementary Cost Accounting
Solution
Statement showiniz Sales

Details
Notes

Total cost of production

Add : Opening stock of finished goods

Less Closing stock of finished goods

Cost of Goods sold
Selling and distribution overheads
Total Cost
Profit
Sales
There is no prescribed format of a Cost sheet. It may change from industry
to industry. A specimen format of a Cost Sheet is given as under:
Particulars Total (Rs.)
A. Materials Consumed :
Purchases ..............
Add : Opening Stock of Raw material ..............
Expenses on Purchases .............. Less :
Closing Stock of Raw Material ..............
H. Total Cost of Production (F + G)
Direct Material consumed ..............
B. Add Direct
: Opening Stock
Labour of finished Goods
(Wages) ..............
C. Cost Direct
of Goods available for sale
Expenses ..............
D. Less Prime
: Closing
CostStock
(A + of
B finished
+ C) Goods ..............
Notes
E. I. CostFactory/Works
of production of goods Sold or cost of good sold ..............
Overheads
J. Selling
Addand Distribution
: Opening Overheads
Stock of Work-in-Progress ..............
K. TotalLess
Cost: (I + J) =Stock
Closing Cost of Sales
Work-in-Progress ..............
F. L. ProfitWorks/Factory Cost (D + E) ..............
G. M. SalesOffice
(K + L)
and administration overheads ..............

Preparation of cost sheet

The various components of cost explained above are presented in the form
of a statement. Such a statement of cost consists of prime cost, works cost,
cost of production of goods, cost of goods sold, total cost and sales and
 MODULE
Cost Sheet - 6B MODULE - 6B
Cost Sheet
Elementary Cost Accounting Elementary Cost Accounting
is termed as cost sheet.
The Preparation of a Illustration 8
cost sheet can be
understood with the From the following information, prepare a cost sheet for period ended on
help of following 31st March 2006.
illustration:
Rs.
Opening stock of raw material 12,500
Purchases of raw material 1,36,000
Closing stock of raw material 8,500
Direct wages 54,000
Direct expenses 12,000
Factory overheads 100% of direct wages Office and administrative
overheads 20% of works cost Selling and distribution overheads
26,000
Cost of opening stock of finished goods
Cost of Closing stock of finished goods
Profit on cost 20%
 MODULE
Cost Sheet - 6B MODULE - 6B
Cost Sheet
Elementary Cost Accounting Elementary Cost Accounting
Solution:
Cost sheet

Details
Notes
Direct Material : Material consumed Opening ‘stock of raw material Add: Purchases
Less: Closing stock of raw material
Direct wages
Direct expenses
Prime cost
Factory overheads: 100% of direct wages

FG100 54000 I J
(i.e. H K
100
Works cost
Office and administrative overheads
20% of works cost, (2,60,000 × 20/100
Total cost of production
Add : opening stock of finished goods
Cost of Goods available for sale
Less : Closing stock of finished goods
Cost of goods sold
Selling and distribution overheads
Total Cost = cost of sales
Profit (20% On Cost i.e. 3,35,00 × 20/100) Sales

Illustration 9
The following information is given to you from which you are required to
prepare Cost Sheet for the period ended on 31St march 2006:
 Consumable material: Rs.
Opening stock 20,000
Purchases 1,22,000
Closing stock 10,000
Notes Direct wages 36,000
Direct Expenses 24,000
Factory overheads 50 % of direct wages
Office and administration overheads 20% of works cost
Selling and distribution expenses Rs.3 per unit sold
Units of finished goods
In hand at the beginning of the period (Value Rs. 12500) 500
Units produced during the period 12,000
In hand at the end of the period 1,500
Find out the selling price per unit if 20% profit on selling price. There is
no work-in-progress either at the beginning or at the end of the period.

Solution:
Cost Sheet for the period ended on 31st March 2006 (output 12000units)
Particulars

Material Consumed: Opening Stock Add: Purchases

Less: Closing Stock

Cost of raw material consumed
Direct wages Direct Expenses Prime Cost
Factory Overheads
50% of Direct Wages (i.e. 12000 × 1.50) Works/Factory overheads
Office overheads
20% of works cost
Total Cost of production
Add: Opening stock of finished goods (500 units @ 25)
Cost of goods available for sale (12000 + 500) Less : Closing stock of Finished goods
unit (1500 units)
Cost of goods sold (12500 – 1500 = 11000 units) Add: Selling & Distribution overheads @ per unit Cost
Add: Profit 20% On Selling Price i.e. 25% of cost of sales
Notes
Sales F
H 100 K

INTEXT QUESTIONS 29.3

Fill in the blanks with suitable words:
(i) ...................... is also termed as administrative cost or total cost of
production.
(ii) Cost of production of goods sold = ...................... + opening stock
of Finished goods – closing stock of finished goods
(iii) Total cost is also termed as ......................
(iv) If profit is added to the total cost ...................... are arrived at.
(v) Sales = ...................... + Profit.

WHAT YOU HAVE LEARNT

Cost Sheet: Meaning :
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 follows:
Cost ascertainment
Fixation of selling price
Notes
 Help in cost control Factory Cost = Prime cost + Factory overheads
Facilitates Cost of production/office cost = Factory Cost + office and
managerial decisions administration overheads
Components of Cost of production of goods sold = Cost of Production + Opening stock
Total Cost of Finished’ goods – closing stock of finished goods
Prime Cost = Direct Total Cost = Cost of Production of goods sold + Selling and
material + Direct distribution overheads
Wages + Direct
expenses works/ Sales = Total Cost + Profit
factory cost;
The various components of cost explained above are presented in the
form of a statement.

TERMINAL QUESTIONS
1. What is meant by cost sheet? Explain the importance of Cost Sheet.
2. Define various components of total cost.
3. Compute the cost of material consumed from the following data:
Opening stock of raw material Rs.9,000

Purchases of raw material Rs.1,27,000

Closing stock of raw material Rs.12,000
4. Compute Prime cost from the data given below:

Direct Material
Expenses on purchases
Rent of special machine taken on hire for produc
Productive wages
5. From the following information., prepare cost sheet.

Direct material
Direct Labour
Direct Expenses
Factory overheads
Office and administration overheads 20% of works cost
Selling and distribution overheads
Opening stock of finished goods
Closing stock of finished goods
Profit on Sales 10%

ANSWERS TO INTEXT QUESTIONS

Intext Questions 29.1

II. (i) Compo
(iii) Histori
(v) selling

Intext Questions 29.2

I. Direct material + Direct wages + Direct expenses
II. (i) Classified, analysis (ii) basic, direct
(iii) Opening stock of material (iv) production
(v) work-in-progress.

Intext Questions 29.3

(i) Office cost (ii) cost of production
(iii) cost of Sales (iv) sales
(v) Total Cost or cost of sales.

Answers to Terminal Questions

3. Materials consumed Rs.1,24,000
4. Prime cost Rs.305,000
5. Sales Rs 4,07,000