UNIT 6 COST SHEET

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6.1 INTRODUCTION
One of the main objectives of cost accounting is to ascertain the cost of products or services. Different methods of cost ascertainment have been devised for different industries and the method to be used in a particular industry depends upon type and nature of industry. In those industries where production consists of a single product or a few varieties of the same product, such as cement, steel, paper, sugar etc., the cost is ascertained by preparing a statement known as cost sheet. As the production is uniform and cost nits are identical, the cost per unit is the average cost. It is ascertained by dividing the total cost by the number of units produced. Cost unit may be a tonne of steel/cement/sugar, 1,000 bricks, a barrel of beer, a gallon of milk etc. The cost sheet is designed to show the total cost as well as cost per unit of output for the given period.

Suggested Graphic: with the caption of INTRODUCTION to cost Sheet animate the below given sheet. Give sub-caption those industries where production consists of a single product or a few varieties of the same product, such as cement, steel, paper, sugar etc., the cost is ascertained by preparing a statement known as cost sheet.

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6.2 MEANING OF COST SHEET

Cost sheet is a periodical statement of cost designed to show in detail the various elements of cost of goods produced like prime cost, factory cost, cost of production and total cost. It is prepared at regular intervals, e.g., weekly, monthly, quarterly, yearly, etc. Comparative figures of the prev ious period may also be shown in the cost sheet so that assessment can be made about the progress of the business. Purposes: Cost sheet serves the following purposes: 1. It reveals the total cost and cost per unit of goods produced. 2. It discloses the break-up of total cost into different elements of cost. 3. It provides a comparative study of the cost of current period with that of the corresponding previous period. 4. It acts as a guide to management in fixation of selling prices and quotation of tenders.

Suggested Graphic: with the caption of Meaning of Cost Sheet show a man is preparing cost sheet and labeled Preparing monthly cost sheet. Give subcaption It is prepared at regular intervals, e.g., weekly, monthly, quarterly, yearly, etc. Comparative figures of the previous period may also be shown in the cost sheet so that assessment can be made about the progress of the business. Next caption Cost sheet serves the following purposes animate the above given points on the board.

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6.3 TREATMENT OF STOCKS
Stocks may be of the following three types: (a) Stocks of raw materials (b) Stocks of work-in-progress (c) Stocks of finished goods. Stocks of Raw Materials: In order to calculate the value of raw materials consumed during the period, opening stock of raw materials is added to the raw materials purchased and closing stock is subtracted. This is shown below with assumed figures:
Opening stock of raw materials Add: Purchases Less: Cost of materials consumed Rs. 12,000 42,000 54,000 Closing stock of raw materials 45,000

9,000

Suggested Graphic: with the main caption of Treatment of Stocks make a flow chart and animate the above given points. Next caption Stocks of Raw Materials animate the above given calculation. Give sub-caption In order to calculate the value of raw materials consumed during the period, opening stock

of raw materials is added to the raw materials purchased and closing stock is subtracted.

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Stocks of Work-in-progress: This is the stock of semi-finished goods. In cost sheet, opening stock of work -in-progress is added in prime cost along with factory overhead and closing stock of work -in-progress in subtracted there from. Thus opening and closing stocks of work -in-progress are adjusted in works or factory cost as shown below (with assumed figures):
Rs. Prime cost 62,000 Add: Factory overheads 27,000 Current manufacturing cost 89,000 Add: Opening stock of work -in-progress 13,000 Total goods processed during the period 1,02,000 Less: Closing stock of work -in-progress Works or factory cost 91,000

11,000

Suggested Graphic: with the caption of Treatment of Stocks make a flow chart and animate the above given points. Next caption Stocks of Raw Materials animate the above given calculation. Give sub-caption

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Stock of Finished Goods: In cost sheet, finished goods are adjusted after calculating cost of production. Opening stock of finished goods is added to cost of production and closing stock of fi nished goods is subtracted there from. The resultant figure is called cost of goods sold. This is illustrated below (with assumed figures):
Rs. Cost of production 1,15,000 Add: Opening stock of finished goods 17,000 Cost of goods available for sale 1,32,000 Less: Closing stock of finished goods Cost of goods sold 1,20,000

12,000

The treatment of the above three types of stocks is illustrated in the following specimen cost sheet. Cost Sheet for the period..........
Particulars Rs. Opening stock of raw materials Add: Purchases Add: Expenses on purchases XXX XXX XXX XXX Production............units. Total cost Cost per unit Rs.

Less: Closing stock of raw materials Cost of material consumed Direct wages Direct expenses

XXX

Prime Cost Add: Factory overhead Add: Opening stock of work -in-progress Less: Closing stock of work -in-progress Factory or Works Cost Add: Administrative overhead Cost of Production Add: Opening stock of finished goods Less: Closing stock of finished good s Cost of Goods Sold Add: Selling and distribution overhead Cost of Sales Profit (or Loss) Sales

Suggested Graphic: with the caption of Stock of Finished Goods animate the above given calculation and table. Give sub-caption In cost sheet, finished goods are adjusted after calculating cost of production. Opening stock of finished goods is added to cost of production and closing stock of finished goods is subtracted there from. The resultant figure is called cost of goods sold.

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6.4 ITEMS EXCLUDED FROM COST
The following items are of financial nature and thus are not included while preparing a cost sheet: 1. Cash discount 7. Transfer to reserves 2. Interest paid 8. Donations 3. Preliminary expenses written off 9. Income tax paid 4. Goodwill written off 10. Dividend paid 5. Provision for taxation 11. Profit/loss on sale of fixed assets 6. Provision for bad debts 12. Damages payable at law, etc

6.5 TREATMENT OF SCRAP

Scrap may be defined as an unavoidable residue material arising in certain types of manufacturing processes. Examples of scrap are trimmings, turnings or boring from metals or timber on which operations are performed. Scrap usually has a small realizable value. Such realizable value of scrap is deducted from either factory overhead or factory cost while preparing a cost sheet.

Suggested Graphic: with the caption of Items excluded from cost animate the above given points. Next caption Treatment of Scrap animate the below given

image. Give sub-caption Scrap may be defined as an unavoidable residue material arising in certain types of manufacturing processes.

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6.6 ILLUSTRATIVE COST SHEET (DETAILED)
Particulars Rs. Opening Stock of Raw Materials Add: Purchases Add: Carriage Inward Add: Octroi and Customs Duty Less: Closing Stock of Raw Materials Cost of Direct Materials Consumed Direct or Productive Wages Direct (or Chargeable) Expenses Prime Cost Add: Works or Factory Overheads: Indirect Materials Indirect Wages Leave Wages Overtime Premium Fuel and Power Rent and Taxes Units produced............ Total cost Cost per unit Rs. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...

Less: Add: Less: Add:

Add: Less: Add:

Insurance Factory Lighting Supervision Works Stationery Canteen and Welfare Expenses Repairs Haulage Works Salaries Depreciation of Plant & Machinery Works Expenses Gas and Water Drawing Office Salaries Technical Directors Fees Laboratory Expenses Works Telephone Expenses Internal Transport Expenses Sale of Scrap Operating Stock of Work -in-progress Closing Stock of Work -in-progress Works Cost Office and Administrative Overheads: Office Salaries Directors Fees Office Rent and Rates Office Stationery and Printing Sundry Office Expenses Depreciation of Office Furniture Subscription to Trade Journals Office Lighting Establishment Charges Directors Traveling Expenses Postage Legal Charges Audit Fees Depreciation and Repair of Office Equipment Cost of Production Opening Stock of Finished Goods Closing Stock of Finished Goods Cost of Goods Sold Selling and Distribution Overheads: Advertising Showroom Expenses Bad Debts Salesmens Salaries and Expenses Packing Expenses Carriage Outward Commission of Sales Agents Counting House Salaries Cost of Catalogues Expenses of Delivery Vans Collection Charges Traveling Expenses Cost of Tenders Warehouse Expenses Cost of Mailing Literature Sales Managers Salaries

... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... .....

Sales Directors Fees Showroom Expenses Sales Office Expenses Depreciation and Repairs of Delivery Vans Expenses of Sales Branches Cost of Sales (or Total Cost) PROFIT Sales

..... ..... ..... .....

Suggested Graphic: with the caption of Illustrative Cost Sheet (Detailed) animate the above given sheets with its given name.

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Illustration 6.1 The following particulars have been extracted from the books of J.K. Production Co. Ltd., for the year ended 31st March, 2006.
Stock of materials as on 1st April, 2005 Stock of materials as on 31st March, 2006 Materials purchased Drawing office salaries Counting house salaries Carriage inwards Carriage outwards Donations to relief fund Sales Bad debts written off Repairs of plant, machinery and tools Rent, rates, taxes and insurance (factory) Rent, rates, taxes and insurance (office) Traveling expenses Traveling salaries and commission Production wages Depreciation written off on machinery, plant and tools Depreciation written off on office furniture Directors fees Gas and water charges (factory) Gas and water charges (office) General charges Managers salary Rs. 47,000 45,000 2,08,000 9,600 14,000 8,200 5,100 4,300 4,87,000 4,700 8,600 3,000 1,000 3,700 7,800 1,45,000 9,100 600 6,000 1,000 300 5,000 18,000

Out of 48 working hours in a week, the time devoted by the manager to the factory and office was on an average 30 hours and 18 hours respectively throughout the accounting year. Prepare a cost sheet showing different elements of cost. Solution
Cost Sheet for the year ending 31st March, 2006 Rs. Rs. Opening stock of raw materials 47,000 Add : Purchases 2,08,000 Add : Carriage inwards 8,200 2,63,200 Less : Closing stock 45,000 Cost of materials consumed 2,18,200

Production wages Prime Cost Factory overhead: Rent and rates Drawing office salaries Depreciation of plant Repairs of plant Factory gas and water Managers salary
18,000 30 48

1,45,000 3,63,200 3,000 9,600 9.100 8,600 1,000 11,250 42,550 4,05,750

Factory Cost Administration overhead: Office rent and rates Depreciation on furniture Directors fees Gas and water General charges Managers salary
18,000 18 48

1,000 600 6,000 300 5,000 6,750 19,650 4,25,400

Cost of production Selling and distribution overhead: Counting house salaries Carriage outwards Bad debts Traveling expenses Traveling salaries Cost of Sales PROFIT Sales
Note : Donation to reli ef fund is not included in cost.

14,000 5,100 4,700 3,700 7,800

35,300 4,60,700 26,300 4,87,000

Suggested Graphic: animate the above given illustration with its solution.

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6.7 PRICE QUOTATIONS AND ESTIMATED COST SHEET
Quite often the management has to quote prices of its products in advance or has to submit tenders for goods to be supplied. For this purpose an estimated cost sheet has to be prepared. Such an estimated cost sheet is prepared to show the estimated cost of products to be manufactured. In this cost sheet, cost of direct materials, direct wag es and various types of overheads are pre -determined on the basis of past costs after taking into account the present conditions and also the anticipated changes in the future price level. Calculation of profit: After the total cost has been estimated, a desired percentage of profit is added to arrive at the price to be quoted. Such profit may be given as a percentage of cost or percentage of selling price. In order to calculate the amount of profit, it is easy to assume that figure as 100 on which profit percentage is given and then calculate the amount of profit. Example 1

Given:

Total cost = Rs. 50,000 Profit = 20% of cost Suppose cost = Rs.100 Profit = 100 20% = Rs. 20 When cost is Rs. 50,000
20 100 =

Profit = 50,000

Rs. 10,000

Suggested Graphic: with the caption of Price Quotations and Estimated Cost Sheet show a board room where show five persons are discussing about the price of product. Show persons are submitting tender. (Ask me while working). Next caption Calculation of profit animate the above given example on the notepad.