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Monday, May 25, 2020

Comprehensive Article on Cost Sheet - Format, Key Points and Expenses included & Excluded from Cost Sheet

Cost Sheet or Statement of Cost
Cost Sheets are statements setting out the costs of a product giving details of all the costs. Presentation of costing information depends upon the method of costing. A cost sheet can be prepared weekly, monthly, quarterly or annually. In a cost sheet besides total expenditure incurred, cost per unit of output in case of each element of cost can be shown in a separate column. The cost sheet should give cost per unit in the previous period for the purposes of comparison.
Walter & Bigg define, “The expenditure which has been incurred upon production for a period is extracted from the financial books and the store records, and set out in a memorandum or a statement. If this statement is confined to the disclosure of the cost of the units produced during the period, it is a termed as a cost sheet”. In other words cost sheet is a statement showing the total cost under proper classification in a logical order.
Components of Total Cost
1. Prime Cost: Prime cost consists of costs of direct materials, direct labors and direct expenses. It is also known as basic, first or flat cost.
2. Factory Cost: Factory cost comprises prime cost and, in addition, works or factory overheads that include costs of indirect materials, indirect labors and indirect expenses incurred in a factory. It is also known as works cost, production or manufacturing cost.
3. Office Cost: Office cost is the sum of office and administration overheads and factory cost. This is also termed as administration cost or the total cost of production.
4. Total Cost: Selling and distribution overheads are added to the total cost of production to get total cost or the cost of sales.

Format of Cost Sheet
Rate per Unit
Opening Stock of raw material
Add: Purchases Less return of raw materials
Add: Carriage inward
Add: Octroi, Freight, Insurance of Raw material and Duty
Add: Primary packing material of raw material
Less: Closing stock or raw materials
Less: Sale value of Scrap of Raw Material (Normal loss)
Less: Abnormal loss of material (Cost)
a) Raw Material Consumed
Add: Direct labour/Productive Labour/Manufacturing wages
(Both Skilled and Unskilled labour)
Add: Chargeable expenses/direct expenses/ hire of crane for job/ royalty on production or royalty/cost of blue print/fees paid to architect and surveyors/ license fees/
b) Prime Cost
Add: Factory overheads/Works overheads (Refer working note below)
Less: Sale of Factory Scrap (Normal Loss)
Less: Cost of abnormal loss of stores and factory materials
c) Factory/Works/Manufacturing cost incurred
Add: Opening work-in-progress
Less: Closing Work-in-progress
d) Factory/Works/Manufacturing cost
Add: Office and Administrative Overheads (Refer working note below)
e) Cost of Production
Add: Opening Stock of finished product
Less: Closing stock of finished goods
f) Cost of goods sold
Add: Selling and distribution overheads (Refer working note below)
g) Cost of Sales/Cost of Turnover
Add Profit margin
h) Sales value
Working Notes: List of Various types of overheads
Factory overheads
Office and Administrative overheads
Selling and distribution overheads
Expenses excluded from cost sheet
Indirect or unproductive  Material and Wages, Leave wages, Bonus to workers, overtime wages, fuel and power, gas, coal and water, All factory expenses, property tax on factory building, Works stationery, canteen and welfare expenses, all works expenses, technical director fees, repairs and maintenance, depreciation of plant, machinery and factory building, works salaries, supervision and foremen, laboratory expenses, Drawing office salaries, factory power and light, storekeeping   expenses, consumable store, cotton waste, unproductive expenses, storekeeper and time keeper, tools used, grease oil, Crane expenses, sandpaper, Haulage, Cost of idle time, Internal transport, Defective works – cost of rectification.
Office rent, rates and taxes, printing and stationery, staff salaries and bonus, consultation fees, counting or compting house salary, office lighting and electricity, sundry and general expenses, director’s fees and other expenses, Contribution to provident fund and employees state insurance, consultation   fees, legal and bank charges, audit fees, depreciation on office equipments and furniture, Subscription of journal and magazines, postage and telephone, executives expenses, clerks and secretaries and accountant salaries and other expenses, R&D Expenses (Research and Development expenses), estimating expenses
Warehouse expenses, Show room expenses, Salesmen expense, shop expenses, delivery  van expenses, branch expenses, advertisement and bad debts, collection charges, Sales office expenses, cost of tenders and catalogues, price lists, travelling expenses, bad debts, carriage outward, packing expenses, quotations, after sales service, free sample, royalty on sales, marketing research expenses.
Donation, Income tax, Profit or loss on sale of assets, provision for income tax and bad debts etc., transfer to reserves, goodwill and intangible assets written off, preliminary expenses, discount of issue of shares and debentures,   dividend, cash discount, interest paid, advance income tax, debenture interest, interest on loan and overdrafts, any income received, over depreciation, abnormal bad debt, interest on capital, capital losses, fines and penalties, Discount allowed and received, Brokerage and underwriting commission, Guest house expenses and incomes, Sales Tax

Important points:
1. Normal loss of raw materials
Excluded from cost sheet, only scrap value (Sale value) of normal loss is deducted from raw material
2. Normal loss of stores and factory indirect material
Excluded from cost sheet, only scrap value (Sale value) of normal loss is deducted from factory overheads
2. Abnormal loss of raw material
Cost of abnormal loss is deducted from raw material consumed.
4. Abnormal loss of stores and factory indirect material
Cost of abnormal loss is deducted from factory overheads.
5. Units of Opening and closing stock of raw material
Valued at purchase price per unit or given value is considered.
6. Units of opening and closing stock of finished goods
Valued at cost of production per unit
7. Production during the year (Units)
Sales +closing stock – opening stock
8. Sales during the year (Units)
Production + opening stock – closing stock
9. LIFO Method of valuation of stock
Opening stock balance + Units unsold during the year = closing stock
10. FIFO method of valuation of stock
Units unsold during the year + Remaining balance of opening stock = closing stock

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