In the earlier article we have
discussed Cost Accounting, Advantages of Cost Accounting, Elements of Cost and
also difference between the Financial Accounting and Cost Accounting. Today in
this article we will be discussing cost sheet meaning, format of cost sheet,
why do we prepare cost sheet and how to prepare the cost sheet.
Cost Sheet
Cost Sheet is a statement which
reflects all the details of the cost of production along will the office
overhead, selling and distribution overhead that have incurred during
production of a particular goods or service. It also include the profit margin
also.
Why do we need to Prepare Cost Sheet
Cost
Sheet is prepared for various purposes mainly for the following reasons,
§ To determine the selling price of the product or service based on
cost of production.
§ To determine the cost of production.
§ To determine the cost per unit and total cost.
§ To set the profit margin.
§ Helps to compare the cost with the past cost data to make better
decision on cost of production.
§ It helps management to formulate
the appropriate production policy.
§ It will help management in various purposes regarding the
production and gain more insights about cost of production for making better
informed decision.
Format of Cost Sheet
Elements of
Cost
|
Total Cost
|
Cost Per Unit
|
Direct Material
|
XXX
|
XXX
|
Direct Labour
|
XXX
|
XXX
|
Direct Expenses
|
XXX
|
XXX
|
Prime Cost
|
XXX
|
XXX
|
Add: Factory Overhead
|
XXX
|
XXX
|
Less: Sale of Scrap
|
XXX
|
XXX
|
Add : Opening Stock of WIP
|
XXX
|
XXX
|
Less : Closing Stock of WIP
|
XXX
|
XXX
|
Factory Cost/
Works Cost
|
XXX
|
XXX
|
Add : Office Overhead
|
XXX
|
XXX
|
Cost of
Production
|
XXX
|
XXX
|
Add : Opening Stock of Finished Goods
|
XXX
|
XXX
|
XXX
|
XXX
|
|
Less : Closing Stocks of Finished Goods
|
XXX
|
XXX
|
Cost of Goods
Sold
|
XXX
|
XXX
|
Add: Selling & Distribution Overhead
|
XXX
|
XXX
|
Total Cost
|
XXX
|
XXX
|
Add: Profit
|
XXX
|
XXX
|
Selling Price
|
XXX
|
XXX
|
How to Prepare Cost Sheet
In
order to prepare the Cost Sheet follow the following steps,
§ § Step 1:
To obtain Direct Cost add up
Opening Cost + Purchases – Closing Stock of Material together then add Direct
Cost plus Direct Labour and Direct Expenses in order to obtain the Prime Cost
i.e. (Direct Cost = Opening Cost + Purchases - Closing Stock of Material
)(Prime Cost = Direct Cost + Direct Labour Cost + Direct Expenses).
§ Step 2 :
Now you have got Prime Cost.
Now add factory overhead deduct sale of scrap and again add opening stock in
work in progress and then finally deduct closing stock of work in progress to
get Factory Cost or Work Cost. ( Prime Cost + Factory Overhead - Sale of Scrap
+ Opening Stock of WIP – Closing Stock of WIP = Factory Cost )
§ Step 3 :
Now you have got Factory
Cost add up Office Overhead to obtain the Cost of Production. (Cost of
Production = Factory Overhead + Office Overhead).
§ Step 4 :
Now you have got Cost of
Production. Add up opening stock of finished goods and deduct closing stock of
finished goods to Cost of Production in order to obtain Cost of Goods Sold.
(COGS = Cost of Production + Opening Stock of finished goods – Closing stocks
of finished goods)
§ Step 5 :
Now you have Cost of Goods
Sold. Add up Selling and Distribution overhead to get total cost.(Total Cost =
COGS + Selling and Distribution overhead)
§ Step 6:
Now add up Profit to total cost to get the selling price. (Selling
Price = Total Cost + Profit).
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