Costing and Taxation · Ch 2 — Classification of Cost (Cost Sheet)
Cost Sheet: Definition, Basic Components and Practical Problems
Cost Sheet: Definition, Basic Components and Practical Problems
A Cost Sheet is a statement, prepared for a definite period (a month, a quarter, a year) or for a specific job/batch, that presents the various components of the total cost of a product in a logical, columnar order — building up, stage by stage, from Prime Cost to the final Sales value. It is usually prepared with two columns: Total Cost for the whole output, and Cost per Unit, obtained by dividing each total by the number of units produced. A Cost Sheet serves cost control (comparing costs period to period), price fixation, and management decision-making — the same three purposes that make it one of the most heavily-tested topics in this syllabus.
Preparing a Cost Sheet on WBCHSE's syllabus (as elsewhere in cost accounting) uses only historical/actual figures already available for a period that has passed — this chapter's practical problems compute the cost that WAS actually incurred, never a forecast of what a different, future level of output would cost (that separate technique, Cost Estimation, is explicitly outside this unit's scope).
Basic Components — the Cost Sheet build-up, stage by stage
| Stage | How it is arrived at |
|---|---|
| Direct Material Consumed | Opening Stock of Raw Material + Purchases of Raw Material − Closing Stock of Raw Material |
| PRIME COST | Direct Material Consumed + Direct Wages + Direct Expenses |
| FACTORY COST (WORKS COST) | Prime Cost + Factory (Works) Overhead + Opening Work-in-Progress − Closing Work-in-Progress |
| COST OF PRODUCTION | Factory Cost + Office & Administration Overhead |
| Cost of Goods Sold | Cost of Production + Opening Stock of Finished Goods − Closing Stock of Finished Goods |
| COST OF SALES | Cost of Goods Sold + Selling & Distribution Overhead |
| SALES | Cost of Sales + Profit (or − Loss) |
Every practical problem in this unit essentially fills in some of these rows from the data given and works out the rest — sometimes moving forward (from raw data to Sales), and sometimes working backward (from a known Sales figure and a profit percentage, back to an intermediate cost total).
Cost of Production
Factory Cost + Office & Administration Overhead. This is the cost of the goods actually manufactured during the period — before any adjustment for finished-goods stock or selling/distribution cost.
Cost of Sales
The Cost of Goods (Actually) Sold + Selling & Distribution Overhead. This is the total cost attributable to what was sold, and is the figure against which Profit is usually calculated — either as a percentage on Cost of Sales, or as a percentage on Sales. The two give different profit amounts, a distinction tested in one of this section's own Illustrations below.
Two adjustments deserve special attention, since they are the most common source of error in cost sheet problems:
- Work-in-Progress (WIP) adjustment happens at the Factory Cost stage — Opening WIP is ADDED (work partly done at the start of the period, now completed and included in this period's output) and Closing WIP is SUBTRACTED (work started this period but not yet complete, so its cost should not be counted as part of this period's finished output). …
A statement prepared for a period or a job, showing the various components of total cost built up stage by stage from Prime Cost to Sales, usually with Total Cost and Cost per Unit columns. Used for cost control …
Factory Cost + Office & Administration Overhead — the total cost of the goods actually manufactured …
Cost of Goods Sold + Selling & Distribution Overhead — the total cost attributable to the goods actually sold; profit is calculated on …