COST SHEET

DR. N.K.GUPTA
What is Accounting
 Accounting is the art of recording,
classifying and summarizing in a
significant manner and in terms of
money transactions and events which
are in part at least, of a financial
character and interpreting the result
thereof.
Different types of Accounting
1. FINANCIAL ACCOUNTING: In financial
Accounting daily transactions are recorded
through entries, ledgers are prepared, after
a certain period trial balance is prepared
and finally the final accounts.
2. MANAGEMENT ACCOUNTING :It is used by
Management to control Expenses, to
planning purpose and for the purpose of
decision making so that it may maximize
the profit of business.
1. TAX ACCOUNTING: Though, final
accounts show the income or
loss of the business even then
due to the reason of different tax
structures and Acts prevailing in
every country, tax accounting is
necessary.
2. COST ACCOUNTING: In it, all
expenses whether related to
production or sale are analyzed
so that per unit cost in
production may be known.
Definition of Cost Accounting

 “Cost accounting is the process of

accounting for cost which begins with
the recording of income and
expenditure and ends with the
preparation of periodical statements
and reports for ascertaining and
controlling cost.”
Walter W.Biggs
 Cost Accounting is a part of financial
accounting in which expenses are
classified, recorded, allocated so that
per unit cost of produced commodities
and services may be ascertained.
 The derived data is used to control the
business activites for maximization of
profit and to formulate policies.
Comparison of Final and Cost
Accounts
1. OBJECT- Final accounts are prepared to
know the total cost, total sale and total
profit/loss while cost accounting purports
separate product wise cost, product wise
sales and product wise profit and loss.
2. INFORMATION INTERVAL -
Financial accounts show the profit loss and
financial position at the end of the particular
period while cost accounting shows profit/
loss and cost of each product at any time.
3. PRICE DETERMINATION - Through the
process of financial accounting the determination
of selling price of any product is difficult but
through the process of cost accounting the
determination of selling price of any product is
reliable.

4. REALITY OF EXPENSES – In financial

accounts all direct and indirect expenses are real
while in cost accounting indirect expenses are
estimated on some bases.
Eg. electricity expenses of each department are put
to cost on the basis of unit consumes by each
department
MEASURE OF CONTROL
Financial accounts cannot be used as measure
of cost control but cost accounting is so used.

VALUATION OF STOCK
In financial accounts stocks are valued at cost
or market value whichever is less while in cost
accounting stocks are valued mostly at cost.
Limitations of Final accounts
 Lack of control over raw materials.

 No proper accounting of wages or labour

 Difficulty in deciding prices and non availability

of production cost separately

 Direct and indirect expenses are not defined

separately
 Decision making for Production Standard is
difficult.

 No day to day cost information available

 Non availability of cost data

 No complete analysis of Losses.

Aims and objectives of Cost Accounts
 Ascertainment of cost

 Determination of selling price

 Cost control and cost reduction

 Ascertaining the profit of each activity

 Assisting management in decision making

 Determining and controlling efficiency.

Functions of Cost Accounts
 Calculation, classification,
determination and analysis of cost
 Controlling cost
 Matching cost with revenues
 Other functions
Advantage and Importance of
Cost Accounts
 Advantages to producers and management

 Advantages to labourers

 Advantages to investors and Creditors.

 Advantages to Customers.

 Advantages to Nation.
Different types of Cost Accounting
 Uniform costing Method
 Contract Costing
 Process Costing Method
 Departmental Costing
 Operating Cost System
 Multiple Cost System
 Batch Costing
 Standard Costing System
 Marginal Costing System
Characteristics of Ideal System of
Cost Accounting
 Simplicity
 Economical
 Favorable to business
 Elasticity
 Accuracy and clean Presentation
 Proper Classification and Analysis
 Reconciliation
Methods of
calculating unit cost
Unit Costing
“Single or output cost system is used
in businesses where a standard
product is turned out and it is desired
to find out the cost of a basic unit of
production”

– J.R.Batliboi
Objects of Unit Costing
 To determine per unit cost and total
cost of production.
 To know detailed per unit cost
 Calculating the variation in cost and
determining the reasons for variation
and comparing.
 To decide the price of production
 The Expenditure, which has been incurred
upon production for a period is extracted
from the financial books and store records,
and set out in memorandum statement. If
this period statement is confined to the
disclosure of cost of units produced during
the period, then it is termed as COST
SHEET.
 Cost sheet
 Statement of cost and statement of profit
 Production Account
 Trading & profit & loss A/c & Working A/c
COST SHEET
 It presents an analytical statement of
expenses of production by which per unit
cost of production and different overheads
are known.

-WALTER W. BIGG
Cost Sheet reveals….
 Units produced during particular period
 Direct material,direct labor & other
direct expenses incurred during
particular period
 Estimation & allocation of different
overheads
 Relation between different components
of cost
 Comparison of old records
Advantages of Cost Sheet
 Per unit and total cost of production
can be known
 Determination of SELLING PRICE
 Cost control
Cost Sheet & Apparel Industry

 Production of fabric
 Production of trims
 Production of Finished garments
 Helps in calculating Price
 Price negotiation with buyers
 Controlling costs
Basis Cost Sheet Cost A/c
Form Statement Account
Rules Memorandum of Double entry
particulars statement
When Work unfinished Work completed
Use Comparison with Comparison with
Financial account Financial
 accounts
Nature Analytical Precise
Use Controlling cost Controlling cost 

Elements of Cost and their
Classifications
The total cost is divided into
 Material cost
 Labour cost
 Other expenses
 ELEMENTS OF COST

DIRECT EXPENSES INDIRECT EXPENSES

DIRECT DIRECT OTHER

MATERIAL LABOUR CHARGEABLE
EXPENSES

FACTORY OFFICE EXPENSES SELLING AND

EXPENSES DISTRIBUTION
EXPENSES
 DIRECT MATERIAL:
Material which is primarily used for
manufacturing of the product and thus
becomes as the organ of that product, as
wood is to furniture.
 DIRECT LABOUR:
Those workers who take active part in the
process of production and who are utilised
for changing the shape of material into
production, wages paid to them is direct
labour, as carpenter is to furniture.
 Direct Expenses:
They are those which can without
difficulty be identified as being
incurred wholly for a particular unit of
cost. The important direct expenses
are:
Direct Expenses
1. Excise Duty
2. Royalty
3. Architect’s and Surveyor’s fees
4. Expenses of designing and drawings of
patterns
5. Experimental Expenses
6. Hire Charges
7. Repair and maintenance of the equipment
8. Travelling expenses to the site
Indirect Expenses
 INDIRECT MATERIAL:
Material that is auxiliary to production
but is spent for the whole enterprise
and not for a special unit. For eg.
Lubricating oil for machines.
 INDIRECT LABOUR:
The labour that is not directly utilised
in the process of production. Eg.
Watchman’s salary.
Indirect Charges/ Expenses/
Overheads
They are not directly related to
production units but these are
supplementary expenses done for the
whole unit.
Works/ Factory/ Mill/ Shop/
Foundry/ Manufacturing expenses

These expenses are concerned with

production or factory. They are also
known as works on cost or works
overhead.
Works on Cost
 Indirect materials – nuts, bolts, rags
 Indirect Labour – store keeper’s salary
 Gas, steam, power, fuel, coal, water,
haulage, lighting and heating.
 Rent, rate, taxes and insurance.
 Works manager’s salary
 Depreciation and repairs
 Loose tools
 Stores overheads
 Buying expenses
 Labour welfare expenses – P.F.
 Contribution to technical journals
 Research expenses
 Training Expenses
 Supervision and testing expenses
 Cost of rectifying defective work
Office/ administration/ Establishment
Expenses/ Overheads
1. Officer’s Salary
2. Director’s fees
3. Office rent, rate, taxes, insurance, lighting
and cleaning
4. Office stationery, telephone, postage
5. Depreciation on office equipment
6. Auditors’ fees
7. Bank Charges
8. Subscription to trade journals
Selling and Distribution Expenses/
Overheads
1. Travelling Expenses
2. Salesman’s Salary and commission
3. Discount, trade discount, cash discount
allowed
4. Sample expenses
5. Branch expenses
6. Expenses on catalogue and price lists
7. Insurance and taxes on finished goods
8. Showroom Expenses
9. Packing expenses
10. Carriage outward and loading charges
11. Warehouse expenses
12. Delivery van expenses
13. Bad debts
14. Advertisements
15. Collection charges
Items to be excluded from cost
books
1. Abnormal wastage of time and
material
2. Abnormal Expenses
3. Interest on Capital
4. Interest on loans, Cash Credit,
O/D
5. Capital Expenditures
6. Income tax
7. Dividends
8. Discounts on shares and debentures
9. Appropriation of profits
10. Writing off expenses
11. Cash Discount
Specimen of a
Cost Sheet
Cost Sheet for XYZ Co. For The month of ………..2008
Output……..Units
Last Period Current Period
Particulars
Total Cost Per Unit Total Cost Per Unit
Cost Cost
Cost Sheet for XYZ Co. For The month of ………..2008
Output……..Units
Last Period Current Period
Particulars
Total Cost Per Unit Total Cost Per Unit
Cost Cost
Direct Material consumed
Direct Wages
Other direct expenses
Add: Factory overheads
Factory Cost (Gross)
Add: Op. WIP
Less: Clg. WIP
Factory Cost(Net)
Add: Admn. Overheads
Cost of Production
Add: Op. Finished Goods
Less: Clg. Finished Goods
Cost Sheet for XYZ Co. For The month of ………..2008
Output……..Units
Last Period Current Period
Particulars
Total Cost Per Unit Total Cost Per Unit
Cost Cost
Cost of goods sold
Add: Selling overheads
Cost of Sales
Add: Profit as % of Cost
or Selling price
Sales Revenue (Total)
A Case Of Cost
Sheet Preparation
Orient Craft Ltd.
Expenditure incurred in manufacturing 10000 units of
Basic polo T-shirts for the month ending on 31 Jan 2008:
Raw Material 28000 Rent 2000
Fuel 6900 Rates and insurance 300
Electric power 1340 Office salaries and
Wages 63500 general expenses 7000
Repairs 2400 Administration of office 5000
Sampling 1060 Depreciation on
Light & water 400 machinery 2500
Cost Sheet for Orient Craft Ltd Co. For the month of 31st Jan
2008 Output 1000 Units
Current Period
Particulars
Total Cost Per Unit Cost

Raw materials 28,000 28.00

Wages 63,500 63.50
PRIME COST 91,500 91.50
Add: Works Expenses
Fuel 6,900 6.90
Electric power 1,340 1.34
Repairs 2,400 2.40
Sampling expenses 1,060 1.06
Cost Sheet for Orient Craft Ltd Co. For the month of 31st Jan
2008 Output 1000 Units

Current Period
Particulars
Total Cost Per Unit Cost

Light & water 400 0.40

Rent 2,000 2.00
Rates & insurance 300 0.30
Depreciation 2,500 16,900 2.50 16.90
WORKS COST 1,08,400 108.40
Add: Office On cost
Office salary 7,000 7.00
Admn. expenses 5,000 12,000 5.00 12
Cost Sheet for Orient Craft Ltd Co. For the month of 31st Jan
2008 Out put 1000 Units
Current Period
Particulars
Total Cost Per Unit Cost

TOTAL COST 1,20,400 120.40

Add:Profit(15% on cost) 18,060
SALES PRICE 1,38,460 138.46
Statement of Cost,
Profit & Loss
Statement of Cost, Profit & Loss is
prepared as the cost sheet is prepared.
The only difference is that in it, like
cost sheet, per unit cost is not
calculated only total cost is prepared.
Defective & rejected work

 Sale of such units is deducted from

total cost
 But, cost of repairing such units is
added to cost of production under the
name of Additional Works overheads
Production A/c
Production A/c
The term production account is used to
denote a particular form of manufacturing
A/c prepared in conjunction with the
financial accounts in order to show the
actual cost of producing the goods
manufactured during the period under
review.These accounts may be drawn up at
short interval Eg Monthly.
-G R Glower & R G Williams
Application of production A/c
 Production A/c for Coke and coal
Companies
 Production A/c for yarn and fabric
production Companies
Case on
Production A/c
 Swadeshi Cotton Mills Ltd.
Prepare Production A/c for the half year
ended on 30 June 2008.
OS yarn at cost(60,000 kg) Rs 30,000
OS fabric at cost(1,20,000 kg) Rs 90,000
Spinning wages Rs 30,000, Stores Rs 20,000
Fuel Rs 10,000,
Yarn sales(2,00,000 kg) Rs 40,000
CS of yarn at cost(2,00,000 kg) Rs 41,000
CS of fabric at cost(2,05,000 kg) Rs 1,50,000
Cotton purchased(10,40,000kg) 2,60,000
Weaving wages 60,000
Stores- weaving Rs 40,000
Fuel weaving-Rs 10,000
Sales of wastage (2,11,000 kg) Rs 29,000
Fabric sales (4,20,000 kg) Rs 3,00,000
Stores consumed increased the weight of
production by 4,000 kg for spinning and
1,20,000 kg for weaving
 Yarn Production A/c
Particulars Wt(kg) Amt Particulars Wt(kg) Amt
To cotton 1040000 260000 By sales waste 211000 29000
To stores 4000 20000 By cost of prod 833000 291000
To fuel 10000
To wages 30000

1044000 320000 104400 320000

To op stock 60000 30000 By sales 200000 40000
To cost of 833000 291000 By cloth prod* 493000 177215
prod
By Clg stock 200000 41000
By profit & loss 62785
(loss)
893000 321000 893000 321000
 Fabric Production A/c

Particulars Wt(kg) Amt Particulars Wt(kg) Amt

To yarn prod 4930000 177215 By loss in wt 108000
To stores 120000 40000 By cost of prod 505000 287215
To wages 60000
To fuel 10000
613000 287215 613000 287215
To op stock 120000 90000 By sales 420000 300000
To cost of prod 505000 287215 By clg stock 205000 150000
To gross profit

625000 450000 625000 450000

* Working notes:
Op stock 60000
+ Production 833000
- Sales 200000
- Closing stock 200000 = 4,93,000 kg transferred to
cloth prod A/c.
Valuation
cost of 893000 kg is Rs 3,21,000
=> cost of 493000 kg is Rs 1,77,215
Trading & Profit &
Loss A/c Or
Working A/c
Working A/c
It is prepared just like production account.
But the production A/c shows only the
production cost but not the other items.
Working A/c is distributed into 6 parts:
1. Prime cost
2. Work cost
3. Production cost
4. Cost of goods sold
5. Cost of sales
6. Net profit
Tender Pricing
Tender Pricing
If any organization wants to purchase
goods in bulk, then it wants information
from the suppliers for rates and terms
of supply and quality of product. The
suppliers send their tenders and the
buyer selects the most beneficial
supplier in terms of cost and quality. It
is also known as Bid pricing.
Case in tender
pricing
Bhagwan Das & sons, Carpet
manufacturers
The firm wants to send a tender for sale of
3000 carpets. It is estimated that materials
will cost Rs 10000, wages Rs 6000.The works
on cost and office and general on cost would
bear the same percentage which works on
cost bears to the productive wages and
general on cost to the works cost in the
manufacture of carpets in the last 6 months.
The firm wants a net profit of 20% on selling
price.
The cost of materials and expenses incurred in the last 6
months ending on 30 June 2008 on the manufacture of
carpets is:
Op stock of finished goods 28000
Op stock of Raw material 12800
Purchase of raw material 292000
Wages 198800
Sales of finished goods 592000
Clg stock of finished goods 30000
Clg stock of Raw material 13600
Works overheads 43736
Office and general charges 35524
 Cost sheet for the six months ended on 30th June 2008

Particulars Rs. Rs .
Op stock of raw materials 12800
Add: Purchases 292000
304800
Less: Closing stock 13600
Cost of material used 291200
Add: Wages 198800
PRIME COST 490000
Add: Works overheads 43736
Particulars
FACTORY COST 533736
Add: Office and general expenses 35524

TOTAL COST 569260

Add: Op stock Finished Goods 28000 597260

Less Clg. stock Finished Goods 30000
COST OF GOODS SOLD 567260
PROFIT 24740
SALES 592000
 Tender for 3000 carpets
Particulars Rs
Materials 10000
Wages 6000
PRIME COST 16000
Work on cost (22% on wages)* 1320
WORKS COST 17320
Office & general on cost (6.656% on work 1153
cost)
TOTAL COST 18473
Profit (20% on SP) 4618
TENDER PRICE 23091
* Working notes
 % age of works on cost to wages =
(43,736/198800)*100 = 22%
 % age of office & general on cost to
factory cost = (35524/533736)*100 =
6.656%
PRICING
METHODS
THE PRICE OF A PRODUCT
IS INFLUENCED BY A
LARGE NUMBER OF
FACTORS LIKE….
 Costs
 Non – Cost Factors
Nature of industry
Product characteristics
Competition
Purchasing power of customers
Supply elasticity
Economic Conditions
Availability of substitutes
Government policies
Management policies
Pricing in different markets
 Perfect Competition
 Monopoly
 Oligopoly
 Imperfect Competition
Why to Study
Pricing in
Costing????
Because….
It helps the management in DECISION
MAKING by providing various kinds of
information such as……..
 Detailed cost analysis
 Future costs in form of tender pricing
 Effect of demand, competition, price
changes on profitability
 Actual profits V/s Projected profits
 Return on capital employed
 Effect of price differential
Pricing decisions are required
when…
 New product is launched
 Quotations / bids to be made
 Product is yielding less profit
 Resistance in the market for the
product
Pricing methods
based on costs
Full Cost / Total Cost Method
Selling price is determined as total
costs plus mark up to cover profit.To
arrive at the selling price, selling,
distribution, and administration
overhead and an estimated or desired
percentage of profit is added to the total
factory cost.
Application

 Cost Plus Contracts

 New products with no established
markets
 Insignificant competition
Full cost Method
 ADVANTAGES  DISADVANTAGES
Long term pricing Ignores Elasticity of
Safest method demand
Ignores competition
Fluctuating costs of
inputs ignored
Arbitrary nature of
elements of cost
Conversion cost method
Total costs minus cost of material
input cost method of pricing is based
on the contention that because
materials do not earn any profit, the
profits should be related to the
services performed, that is the value
added in form of conversion cost.
Return on Investment Methods
This method takes into account the capital
employed for financing the production and sales
of production. The formula for fixing the SP which
will yield desired return on capital
P = [(C+xF)/U] / (1-xV)
Where P= Selling Price
C= Total cost
x = Rate of Return on capital (desired)
F = Fixed Assets
V= Variable capital
U = Annual sales (units)
Marginal Cost Method
 A flexible approach and is particularly
used in short term pricing.
 Lowering of Prices may increase
demand and revenue but the cost may
increase if, for instance, overtime is
worked to meet increased demand, so
that this may result in overall reduction
of profit.
Differential Costs Methods
Differential cost analysis reveals that a
lower price is acceptable so long as
the extra revenue is able to meet the
additional cost and also earn some
profit, provided this does not disturb
the market.
Standard Cost Method
Price decisions are made on the basis
of standard costs and they are revised
before any pricing decisions.
Standards provide a basis for various
analysis.
Learning Curve Method
 It is for the products that have large
and costly non repeat orders of varying
sizes. This method takes the efficiency
factor of workers into account.
 Thank You

sirnkgupta@yahoo.com