Cost Accounting · Ch 1 — Introduction to Cost Accounting
Preparation of a Cost Sheet
Preparation of a Cost Sheet
A cost sheet (also called a statement of cost) is a statement that shows, in a logical order, the various elements of cost of a product for a given period, built up stage by stage from prime cost through to total cost, and — where required — the profit and the selling price. It is prepared under unit (output) costing and is one of the most important documents in cost accounting, because it shows at a glance what a product cost and how that cost is made up.
Purposes of a cost sheet — it shows the total cost and the cost per unit; it discloses the make-up of cost element by element and stage by stage; it helps management to compare costs over time and to control them; and it provides the cost figure on which a selling price is fixed. (In this chapter the cost sheet is studied excluding its use for tender and quotation.)
The stages ("builds") of a cost sheet. A cost sheet is built up in four cumulative stages, each stage adding the next layer of cost to the one before it:
| Stage | What is added | Resulting figure |
|---|---|---|
| 1 | Direct material + Direct labour + Direct expenses | Prime Cost |
| 2 | Prime cost + Factory (works) overheads (adjusted for opening/closing work-in-progress) | Works Cost / Factory Cost |
| 3 | Works cost + Office and administration overheads | Cost of Production |
| 4 | Cost of production (adjusted for opening/closing finished goods) + Selling and distribution overheads | Cost of Sales / Total Cost |
And finally: Sales − Cost of Sales = Profit (or, working the other way, Cost of Sales + Profit = Sales).
The proforma of a cost sheet for a period producing a given number of units is:
| Particulars | Total (₹) | Per unit (₹) |
|---|---|---|
| Opening stock of raw materials | xxx | |
| Add: Purchases of raw materials | xxx | |
| Less: Closing stock of raw materials | (xxx) | |
| Raw materials consumed | xxx | xxx |
| Add: Direct wages (direct labour) | xxx | xxx |
| Add: Direct expenses | xxx | xxx |
| PRIME COST | xxx | xxx |
| Add: Factory / works overheads | xxx | |
| Add: Opening work-in-progress | xxx | |
| Less: Closing work-in-progress | (xxx) | |
| WORKS / FACTORY COST | xxx | xxx |
| Add: Office and administration overheads | xxx | |
| COST OF PRODUCTION | xxx | xxx |
| Add: Opening stock of finished goods | xxx | |
| Less: Closing stock of finished goods | (xxx) | |
| COST OF GOODS SOLD | xxx | |
| Add: Selling and distribution overheads | xxx | |
| COST OF SALES / TOTAL COST | xxx | xxx |
| Add: Profit | xxx | xxx |
| SALES | xxx | xxx |
A statement showing the various elements of cost of a product for a period, built up stage by stage from prime cost to total cost (and, where needed, to profit and selling price), with …
Prime cost plus factory/works overheads, adjusted for opening and closing wor …
Cost of production adjusted for opening and closing finished-goods stock, plus selling and distribution overheads. Sales minus cost …