COST SHEET

1. Define costing.
The I. C. M. A., London has defined costing as the technique and process of
ascertaining costs. According to he!don, costing is defined as the c!assif"ing,
recording and appropriate a!!ocation of e#penditure for deter$ination of costs, the
re!ation of these costs to sa!es %a!ues and ascertain$ent of profita&i!it".
In short, costing is the s"ste$atic procedure of ascertaining the costs of a
product, 'o& or ser%ice.
2. Define cost accounting.
Cost accounting is the process of accounting cost fro$ the point at (hich e#penditure
is incurred or co$$itted to the esta&!ish$ent of its u!ti$ate re!ationship (ith cost
contro! and cost units.
In other (ords, cost accounting is the for$a! s"ste$ of accounting cost &"
$eans of (hich cost of a product or ser%ice is ascertained and contro!!ed.
). Define cost accountancy.
Cost accountanc" has &een defined as the app!ication of costing and cost accounting
princip!es, $ethods and techniques to the arts, science and practice of cost contro!
and ascertain$ent of profit. It inc!udes the presentation of infor$ation deri%ed there
fro$ for the purpose of $anageria! decision $a*ing.
4. What are the advantages of cost accounting?
The i$portant ad%antages of cost accounting are as fo!!o(s+
i, He!ps in decision $a*ing
ii, Supp!ies detai!ed cost infor$ation.
iii, -uides in price fi#ation
i%, .e%ea!s operating efficienc".
%, He!ps in in%entor" contro!
%i, He!ps in cost reduction
5. State with the help of an example the meaning of fixed cost.
/i#ed costs are those costs (hich in the aggregate do not %ar" (ith the change in the
!e%e! of acti%it" or %o!u$e of output and re$ain fi#ed for a gi%en period of ti$e.
.ent, insurance, depreciation of &ui!dings, etc are the e#a$p!es.
. State with the help of an example the meaning of varia!le cost.
0aria&!e costs are those costs (hich %ar" in tota! in direct proportion to the change
in the %o!u$e of output. These costs increase in tota! (hen the output increases and
decrease in tota! (hen output fa!!s. 1sua!!", a!! direct costs such as direct $ateria!
cost, direct !a&our cost and direct e#penses are treated as %aria&!e cost.
". Distinguish !etween fixed cost and varia!le cost.
#ixed cost
Tota! fi#ed cost re$ains fi#ed
irrespecti%e of the !e%e! of
output.
/i#ed cost per unit decreases
(hen the %o!u$e of output
increases
$aria!le cost
Tota! %aria&!e cost %aries a!ong
(ith output.
0aria&!e cost per unit re$ains
constant (hen the %o!u$e of output
changes
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%. What do you mean !y cost centre?
Cost centre is a !ocation, a person or an ite$ of equip$ent for (hich cost $a" &e
ascertained and used for the purpose of cost contro!. It $a" &e a depart$ent or an
area !i*e store roo$, sa!e area, or $achiner", p!ant or a person !i*e a sa!es$an or
super%isor.
&. 'ive the meaning of a profit centre.
A profit centre is a seg$ent of a &usiness that is responsi&!e for a!! acti%ities in%o!%ed
in the production and sa!e of products or ser%ice. It is responsi&!e for the
$a#i$i5ation of profit.
1(. 'ive the meaning of cost unit.
Cost unit is a quantitati%e unit of product or ser%ice or ti$e in re!ation to(hich costs
are ascertained and e#pressed. In short cost unit is a unit of $easure$ent of cost. The
fo!!o(ing are the different cost units+
Industr" 1nit of cost
Mines36uarries per tonne
Ti!e (or*s per thousand &ric*s
Te#ti!e Mi!!s per $etre
7etro! per !iter
Transportation per passenger8*i!o$eter3 per
tonne8*i!o$eter
11. Distinguish !etween cost unit and cost center.
i, Cost centers he!p in ascertaining the costs &" !ocation, equip$ent or person
(hereas cost unit &rea*s up the cost into s$a!!er parts and he!ps in
ascertaining the cost of the product or ser%ice
ii, Cost center is di%ided into t(o parts8 persona! 9 i$persona! (hi!e cost unit is
di%ided into units of product and units of ser%ice
12. Distinguish !etween financial accounting and cost accounting.
:asis /inancia! Accounting Cost Accounting
a, 7urpose To pro%ide accounting infor$ation
to o(ners, creditors, go%ern$ent,
ta# authorities, etc.
;Interna! and e#terna! use,
To pro%ide cost
infor$ation to
$anage$ent
;/or interna! use,
&, Statutor"
require$ent
Accounts ha%e to &e prepared and
presented according to the !ega!
require$ents
There is no such !ega!
o&!igation in preparation
and presentation
c, 7eriodicit" of
reporting
/inancia! state$ents are prepared
periodica!!" ;Once a "ear,
Cost state$ents are
prepared as and (hen the"
are required.
d, <ature of
data
/inancia! account records on!"
historica!3 past data
Cost account records &oth
historica! and esti$ated
costs3data
e, Ana!"sis of
cost and
profit
/inancia! account re%ea!s the cost
and profit of the &usiness as a
(ho!e
Cost account sho(s
detai!ed cost and profit
data for each product,
process, etc.
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1). 'ive meaning * definition of +ost.
Cost is a su$ tota! of a!! e#penditures incurred in producing and se!!ing a
product or in rendering a ser%ice or in perfor$ing a 'o&. /or e#a$p!e, for $a*ing a
(ooden ta&!e, $one" has to spend for three e!e$ents !i*e ra( $ateria! ;ood,,
!a&our ;ages to carpenter, and other e#penses ;rent, insurance, !ighting, etc.,. The
tota! su$ spent on $ateria!, !a&our and e#penses constitutes the cost of the (ooden
ta&!e.
The I.C.M.A., London has defined cost as the a$ount of e#penditure ;actua!
or notiona!, incurred on or attri&uta&!e to a specified thing or acti%it".
Cost can a!so &e defined as the $easure$ent, in $onetar" ter$s, of the
a$ount of resources used for producing goods or rendering ser%ice.
14. What are the elements of cost?
There are three e!e$ents of cost, the" are+
a, Materia! Cost+ .efers to cost of %arious $ateria!s fro$ (hich the product is
$ade. Means cost of ra( $ateria!s, co$ponents, spare parts, consu$a&!e
stores, etc. Materia! cost is c!assified into >irect Materia! Cost and Indirect
Materia! Cost
&, La&our Cost+ Means re$uneration such as sa!aries, (ages, co$$ission,
&onus, etc. paid to %arious categories of e$p!o"ees (or*ing in a factor" or
office. La&our cost is c!assified into >irect La&our Cost and Indirect La&our
Cost
c, E#penses+ E#penses refer to a!! costs other than $ateria! cost and !a&our cost
incurred. E#a$p!es+ rent 9 rates, insurance 9 ta#es, repairs 9 $aintenance,
etc. E#penses can &e c!assified into >irect E#penses and Indirect E#penses.
15. ,xplain the following terms-
a, Direct .aterial +ost+ .efers to the cost of $ateria!s (hich &eco$e a $a'or
part of the finished product. Such $ateria!s can &e identified in the product,
$easured and chargea&!e to the product. /or e#a$p!e, ti$&er used in (ooden
furniture, !eather in shoes, c!oth in shirts, etc.
<ote+ Cost of direct $ateria! inc!udes not on!" purchase price of $ateria!, &ut
a!so e#penses such as i$port dut", doc* charges, freight, carriage, octroi, etc.,
(hich are direct!" incurred on the $ateria!s purchased.
&, /ndirect .aterial +ost+ .efers to cost of $ateria!s, (hich cannot &e easi!"
identified and a!!ocated to particu!ar product. These $ateria!s do not &eco$e a
$a'or part of the finished product. /or e#a$p!e thread used for stitching
shirts, nai!s in furniture, g!ue in shoes, etc.
c, Direct 0a!our +ost- It is the cost of !a&our, (hich is direct!" engaged in the
producti%e operations. In other (ords the (or*er (ho (or*s direct!" (ith ra(
$ateria!s in con%erting the$ into finished goods represents direct !a&our. Cost
of direct !a&our can &e con%enient!" identified (ith and a!!ocated to a
particu!ar product, 'o& or process,
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/o!!o(ing are the e#a$p!es+
i, The !a&our of a carpenter engaged in the $anufacture of (ooden
furniture
ii, The !a&our of a shoe$a*er engaged in $a*ing shoes.
iii, The !a&our of a tai!or engaged in the stitching of dresses.
d, Indirect La&our Cost+ It is the cost of !a&our (hich is not direct!" engaged in
producti%e operations &ut engaged in other operations either in the factor" or
in the office. Indirect !a&our cost cannot &e con%enient!" identified (ith and
a!!ocated to particu!ar product or 'o&. /o!!o(ing are the e#a$p!es+ ages or
sa!aries pa"a&!e to+
i, Store *eeper
ii, /actor" and office super%isors
iii, C!erica! staffs
i%, Ti$e*eepers, etc.
e, >irect ;Chargea&!e, E#penses+ An" e#penditure other than direct $ateria! and
direct !a&our direct!" incurred on a specific product is ca!!ed direct e#pense. It
can &e easi!" identified (ith and a!!ocated to a particu!ar product or 'o&.
/o!!o(ing are the e#a$p!es+
a, Cost of specia! designs, $ode!s, dra(ings, etc.
&, E#peri$enta! cost of an" particu!ar product or pro'ect
c, Cost of ro"a!ties, patents and cop"rights.
d, Hire charges of specia! too!s or equip$ents.
e, I$port dut", carriage in(ard, doc* charges, insurance, etc.
f, Indirect E#penses+ Indirect e#penses are e#penses other than indirect
$ateria! and !a&our (hich cannot &e easi!" identified (ith and a!!ocated to
particu!ar product. /o!!o(ing are the e#a$p!es+
.ent, rates, insurances !ighting and heating, depreciation, printing and
stationar" incurred in the concern.
1. Why does profit shown !y cost accounting differ from financial accounting?
The %arious reasons that are responsi&!e for the disagree$ent of the resu!ts sho(n &"
the t(o sets of accounts are as fo!!o(s+
a, /inancia! charges are inc!uded in financia! accounts &ut not in cost account.
E#a$p!es are+ interest on capita!, interest on $one" &orro(ed, cash discount,
fines and pena!ties, capita! !osses, good(i!! (ritten off, etc.
&, Appropriations of profits are inc!uded in financia! accounts &ut not in cost
account. E#a$p!es are+ inco$e ta#, di%idends, &onus, and transfers to funds.
c, /inancia! inco$es and profits inc!uded in financia! accounts &ut not in cost
account. E#a$p!es are+ interest on deposit, interest on !oans granted, and di%idend
recei%ed, cash discount, capita! profits, etc.
d, <otiona! charges inc!uded on!" in cost account. E#a$p!es are+ .ent of o(n
&usiness pre$ises, interest on o(n capita!, etc.
e, 1nder or o%er a&sorption of o%erheads. Cost account is &ased on esti$ations
(here as financia! account is &ased on actua! cost.
f, >ifference in the $ethod of depreciation.
g, >ifference in the stoc* %a!uation $ethods.
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1". Define the term 1cost sheet2
A cost sheet is a state$ent of cost prepared at gi%en inter%a! of ti$e sho(ing %arious
e!e$ents of cost of a product produced, or ser%ice rendered during a particu!ar period.
This state$ent gi%es detai!s a&out tota! cost and cost per unit at different stages of
production.
4@. What are the uses of a cost sheet?
A s"ste$atica!!" dra(n cost sheet ser%es the fo!!o(ing purposes+
a, It he!ps in fi#ing se!!ing price $ore accurate!".
&, It re%ea!s tota! cost and cost per unit.
c, It disc!oses co$ponents of tota! cost.
d, ith the he!p of cost sheet, $anage$ent can easi!" co$pare the costs of t(o
periods. Such co$parison is he!pfu! in detecting inefficienc" and (astages.
e, It acts as a guide to the producer and he!ps hi$ in fra$ing production po!icies.
f, It pro%ides infor$ation for preparation of tenders, quotations and esti$ates.
1&. What are the components of total cost?
I$portant co$ponents are+
a, 7ri$e Cost A >irect $ateria! cost B >irect !a&our cost B >irect e#penses.
&, or*s Cost A 7ri$e cost B /actor" o%erheads.
c, Cost of production A or*s cost B Office 9 Ad$inistrati%e o%erheads.
d, Tota! Cost ;Cost of sa!es, A Cost of production B Se!!ing 9 >istri&ution
o%erheads.
2(. Define prime cost.
7ri$e cost is the tota! of direct $ateria! cost, direct !a&our cost 9 direct e#penses or
7ri$e Cost A >irect $ateria! cost B >irect !a&our cost B >irect e#penses
21. Define the term 1overhead2.
O%erhead is the aggregate of indirect $ateria! cost, indirect !a&our cost and indirect
e#penses. O%erhead is di%ided into factor" o%erheads, office 9 ad$inistrati%e
o%erheads and se!!ing 9 distri&ution o%erheads.
O%erhead A Indirect $ateria! cost B Indirect !a&our cost B Indirect e#penses.
22. What do you mean !y wor3s cost?
or*s cost is the tota! of direct $ateria! costC direct !a&our cost and direct e#penses
p!us factor" or (or*s o%erheads. In other (ords it is the tota! of pri$e cost and
factor" o%erheads
2). 4ow is prime cost different from factory cost?
7ri$e cost is the tota! of direct $ateria! cost, direct !a&our cost and direct e#penses.
here as factor" cost consists of pri$e cost and factor" e#penses.
24. 4ow is cost of materials calculated?
Cost of $ateria!s consu$ed is the cost of consu$ption of $ateria!s during a
particu!ar period. It can &e ascertained as fo!!o(s+
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.s.
Opening stoc* of $ateria!s EE
Add+ 7urchases EE
Add+ /reight 9 Carriage. EE..
Less+ Materia!s returned EE.
Less+ A&nor$a! !oss of $ateria!. EE.
Less+ C!osing stoc* EE.
Cost of $ateria!s consu$ed+ EE.
25. Distinguish !etween direct la!our and indirect la!our.
An" !a&our e$p!o"ed in con%erting ra( $ateria!s into finished product is
ter$ed as direct !a&our or direct (ages. /or e#a$p!e in a printing press, the (ages
paid to co$positors (ou!d &e direct to the 'o& and hence the a$ount paid is direct
!a&our charge.
Indirect !a&our is not direct!" engaged in $anufacturing operations &ut is
engaged for carr"ing out tas*s incidenta! to $anufacturing operations. /or e#a$p!e,
(ages paid to store *eeper (i!! &e indirect !a&our and hence the a$ount paid is
indirect !a&our charge.
2. 4ow is cost of goods sold o!tained?
Cost of goods so!d is o&tained as fo!!o(s+
.s.
Cost of production+ EEE.
Add+ Opening stoc* of finished goods+ EEE
Less+ C!osing stoc* of finished goods+ EEE
Cost of goods so!d+ EEEE.
2". 'ive the meaning of scrap.
Scrap is the incidenta! residue fro$ certain t"pes of $anufacturing processes usua!!"
of s$a!! a$ount and !o( %a!ue reco%era&!e (ith out further process.
2%. 4ow is closing stoc3 of finished goods valued during the preparation of cost
sheet?
Stoc* of finished goods is genera!!" %a!ued at cost of production. It is ca!cu!ated as
fo!!o(s+
Cost of production 5 1nits of c!osing stoc*

2&. Distinguish !etween selling expense * distri!ution expense.
Se!!ing E#pense >istri&ution E#pense
4 These are indirect costs
incurred in so!iciting and
securing orders fro$
custo$ers and efforts to find
and retain custo$ers
These are indirect e#penses incurred
fro$ the ti$e product is co$p!eted in
the factor" unti! it reaches its point of
sa!e.
= E#a$p!es+ Ad%ertise$ent,
sa!es$en sa!aries,
E#a$p!es+ (arehouse rent, insurance,
carriage, etc.
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<o. of units produced
co$$ission, &onus, pu&!icit",
etc.
)(. ,xplain the following terms-
a, /actor" O%erhead+ Indirect e#penses (hich are incurred in the factor" and are
concerned (ith the running of the factor" are *no(n as factor" o%erhead or
(or*s o%erhead
&, Office 9 Ad$inistration O%erhead+ Ad$inistrati%e o%erhead is cost incurred
for $a*ing po!icies, p!anning and contro!!ing the functions and $oti%ating the
personne! of the organi5ation to(ards attain$ent of its goa!.
c, Se!!ing O%erhead+ These are indirect costs incurred in so!iciting and securing
orders fro$ custo$ers and efforts to find and retain custo$ers
d, >istri&ution O%erhead+ These are indirect e#penses incurred fro$ the ti$e
product is co$p!eted in the factor" unti! it reaches its point of sa!e.
)1. What do you mean !y wor3 in progress? 4ow is it ad6usted?
or* in progress $eans units (hich are not "et co$p!eted &ut on (hich so$e (or*
has &een done. It represents goods, (hich are in process of $anufacturing.
or* in progress %a!ued at pri$e cost is to &e ad'usted (hi!e deter$ining
pri$e cost and (or* in progress %a!ued at factor" cost is to &e ad'usted (hi!e
deter$ining (or*s cost.
)2. 4ow do you treat the following-
a, .o"a!t"+ .o"a!t" pa"a&!e is treated as direct e#pense (here as ro"a!t" pa"a&!e
on the &asis of nu$&er of units so!d is se!!ing o%erhead.
&, Id!e Ti$e+ Cost of nor$a! id!e ti$e is added to (or*s o%erhead (here as cost
of a&nor$a! id!e ti$e is deducted fro$ direct !a&our.
c, Sa!e of defecti%e $ateria!s, scrap or (aste+ A$ount rea!i5ed fro$ the sa!e of
defecti%e $ateria!s is deducted (hi!e deter$ining cost of $ateria! consu$ed.
If produced units are found to &e defecti%e and so!d as scrap, the a$ount
rea!ised fro$ such sa!es is to &e deducted fro$ factor" o%erheads
d, Cost of rectification of defecti%e units+ Added to (or*s o%erhead.
e, A&nor$a! (astage of $ateria!+ Is deducted for$ direct $ateria!.
)). 0ist the items not to !e included in the cost sheet-
>i%idend 9 Interest recei%ed.
.ent recei%ed.
Cash discount a!!o(ed.
Interest on de&entures.
Co$$ission recei%ed.
Interest on capita!.
7rofit 3!oss on sa!e of fi#ed
assets.
/ine or pena!t" paid for &reach of
contract.
Co$pensation pa"a&!e to
e$p!o"ee.
Inco$e ta# and (ea!th ta#
>onation
Cash discount recei%ed.
:onus to e$p!o"ees.
1nder(riting co$$ission,
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)4. 'ive examples for factory7 office7 selling * distri!ution overheads.
/actor" O%erhead Ad$inistration O%erhead
Indirect $ateria!s, &o!ts,
nuts, scre(s, thread, nai!s,
!u&ricants, etc.
-as, stea$, po(er, fue!,
coa!, hau!age, !ighting,
!ighting 9 heating.
.ent, rates, ta#es and
insurance.
or*s $anagerHs sa!ar"
/actor" (or*ers sa!ar"
>epreciation, repairs9
$aintenance
Oi!ing and c!eaning of
$achines.
Technica! directorHs fees or
re$uneration.
E#peri$enta! and research
e#penses.
Cost of training the ne(
e$p!o"ees.
La&orator" e#penses.
Super%ision, inspection and
testing fees.
La&our office e#penses.
Municipa! ta#es.
Cost of rectif"ing defecti%e
output.
>ra(ing office e#penses.
-as tur&ine running cost.
ater treat$ent p!ant
e#penses.
7a" for ho!ida"
e!fare e#penses.
E$p!o"ees state insurance.
7rinting and stationer" used in the
office.
Office sa!aries.
Office rent, rates and insurance.
Office !ighting, heating and
c!eaning.
>epreciation and repairs of office
&ui!ding.
Lega!, &an*, audit, postage and
te!ephone charges.
Trade su&scription 3 trade
$aga5ines.
-enera! e#penses.
Counting house e#penses.
Hire of accounting $achines.
Selling 8verhead
Sa!aries and co$$ission to sa!es
personne!.
Ad%ertise$ent and pu&!icit".
Sho(roo$ e#penses.
E#hi&ition e#penses.
:ad de&t
Co!!ection charges
Distri!ution 8verhead
.ent, rates, (arehouse insurance
>epreciation of de!i%er" %ans.
ages of dispatch c!er*s.
/reight and insurance charges.
>iscount, co$$ission and
&ro*erage,
Sa$p!e e#penses.
E#penses of cata!ogues and price
!ists
Insurance and ta#es of finished
goods.
arehouse (ages.
7arce!s sent to custo$ers.
.oad !icense for de!i%er" %ans
Carriage out(ard.
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9999999999
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