Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
BCOM III
Cost Accounting
Topic- Cost Sheet
Elements of cost:
There are three elements of cost.
1) Materials
2) Labour and
3) Other expenses
Each of the above may be Direct or Indirect.

Direct Material + Direct Labour + Direct expenses = Prime Cost

Indirect Material + Indirect Labour + Indirect expenses = Overheads

1. Prime cost + Factory overheads = Factory or works cost

2. Factory cost + Office & Administration overheads = Cost of Production
3. Cost of production + Op. stock of Finished goods – Cl. stock of finished goods = Cost of goods sold
4. Cost of goods sold + selling & distribution overheads = cost of sales
5. Cost of sales + profit = Sales

The term materials refers to those commodities which are used as raw materials for manufacturing a
product. They may be direct or indirect.
Direct materials: Those materials which can be identified in a product and can be conveniently measured
and directly charged to the product. Therefore, direct materials become a part of finished product as well.
These include the following:
a) Materials specifically purchased for a particular product, job, process, contract etc.
b) Materials purchased in semi-finished or finished stage for purposes of further processing and
assembling, eg: tyres, batteries etc to be assembled into another product.
c) Primary packing materials like wrappings, cartons, cardboard boxes, etc. used to protect finished
product from climate conditions or for easy handling inside the factory.

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Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
Indirect materials: It refers to the material which we require to produce a product but is not directly
identifiable. It does not form a part of a finished product. For example, the use of nails to make a table,
oil and grease, lubricants, cotton waste, cleaning materials etc. The cost of indirect material does not
vary in the direct proportion of product.

Direct Labour: It refers to the amount which paid to the workers (both skilled and unskilled) who are
directly engaged in the production of goods. It varies directly with the level of output. Wages paid to
machine man, workers working in production department, workers of the assembly section, machine
operators etc. They are also called productive labour.

Indirect Labour: It represents the amount paid to workers who are indirectly engaged in the production
of goods. It does not vary directly with the level of output. Wages of storekeepers, foremen, time-
keepers, directors’ fee, salaries of salesmen etc.

Direct Expenses: It refers to the expenses that are specifically incurred by the enterprises to produce a
product. The production cannot take place without incurring these expenses. It varies directly with the
level of production.
These are:
a) Rental value of plant & machinery for a specific product.
b) Insurance charges for materials and equipments used for a specific product.
c) Cost of patents and royalties for a particular product.
d) Fee paid to architects, surveyors and other consultants for a specific contract.
e) Cost of special lay out, design or drawings.
f) Carriage inwards and freight charges on the materials purchased for a specific job or process.

Indirect Expenses: It represents the expenses that are incurred by the organization to produce a
product. These expenses cannot be easily identified accurately. For example, Power expenses for the
production of pens, factory rent, depreciation on plant, factory insurance etc.

Overhead: It refers to all indirect materials, indirect labour, or and indirect expenses.

Factory Overhead: Factory overhead or Production Overhead or Works Overhead refers to the
expenses which a firm incurs in the production area or within factory premises.
Indirect material, rent, rates and taxes of factory, canteen expenses etc.are example of factory
overhead.

Administration Overhead: Administrative or Office Overhead refers to the expenses which are incurred
in connection with the general administration of the organizations.
Salary of administrative staff, postage, telegram and telephone, stationery etc.are examples of
administration overhead.

Selling Overhead: All expenses that a firm incurs in connection with sales are selling overheads. Salary
of sales department staff, travelers’ commission, advertisement etc.are example of selling overhead.

Distribution Overhead: It represents all expenses incurred in connection with the delivery or distribution
of finished goods and services from the manufacturer to the consumer. Delivery van expenses. loading
and unloading, customs duty, the salary of deliverymen are examples of distribution overhead.

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Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
Format of cost sheet
Name of the company ……….
For the period ending ……….
Particulars Total (₹) Per unit (₹)
Opening stock of Raw materials --------
+ Purchases --------
+ Expenses on purchases _____
-------
- Closing stock of raw material _______
Value of Raw material consumed -------
Direct labour -------
Direct expenses -------
PRIME COST -------
+ Factory overheads ------
+ Opening stock of Work in progress
- Closing stock of work in progress
Factory cost or work cost -------
+ office and administration overheads ------
Cost of production --------
+ Opening stock of Finished goods -------
- Closing stock of finished goods -------
Cost of goods sold --------
+ Selling and distribution overheads --------
Cost of sales -------
+ Profit -------
Sales ------

Meaning of Cost Sheet – Cost sheet is a statement which is used to determined the total cost
of goods produced or units in a specific period and in which total cost, per unit cost and
incurred at various stages from manufacturing a products to the stage of making it saleable are
shown. In this way, it can be said that cost sheet is a statement in which the cost of production
is presented in an analytical way.

Items excluded from cost sheet:

Purely financial incomes:
Interest on investments
Interest on bank deposits
Rent receivable
Capital receipts (profit on sale of capital assets)
Dividend received
Brokerage, commission, discount received
Purely financial charges:
Capital losses
Damages payable

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Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
Expenses on transfer of company’s office
Interest on bank loan, debenture, mortgages etc
Discount on bonds, debentures, etc.
Losses on investments
Cash discounts
Income tax
Appropriation of profits
Appropriation to sinking fund
Dividends paid
Taxes on income and profits
Charitable donations
Transfer to general/ specific reserves
Amounts written off- goodwill, preliminary expenses, etc.
Any other item of Profit & Loss Appropriation A/c
Abnormal expenses and losses
Loss by theft
Loss by fire
Cost of abnormal idle time
Exceptional bad debts
Cost of abnormal wastage of materials

Practical Questions from past years

Q 1. From the following, prepare a cost sheet and quote a suitable price.
Total production 5,000 tonnes
Cost of raw materials ₹ 20,00,000
Carriage inwards ₹ 2,00,000
Direct wages ₹ 20,00,000
Indirect wages ₹ 1,00,000
Office expenses ₹ 10,00,000
Selling overheads ₹ 10,00,000
Payment of income tax ₹ 3,00,000
Dividend paid ₹ 5,00,000
A profit margin of 50% on cost is desired.
Q 2. From the following prepare a cost sheet.
Cost of materials @ ₹ 13 per unit
Labour cost @ ₹ 7.50 per unit
Factory overheads ₹ 45,000
Administration Overheads ₹ 50,000
Selling Overheads ₹ 2.50 per unit sold
Opening Stock of finished goods – 500 units @ ₹ 19.75
Closing stock of finished goods – 250 units
Sales – 10,250 units at a profit of 20% on sales.
Q 3. X Ltd. Has received an enquiry for the supply of 1,000 Premium Shirts.
The costs are estimated as under:
Raw Materials 2,500 Mtrs @ ₹ 40 per mtr

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Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
Direct Wages 10,000 Hrs @ ₹ 4 per hr
Variable overheads Factory ₹ 2.40 per labour hr
Selling and Distribution ₹ 16,000
Fixed Overheads Factory ₹ 6,000
Selling and Distribution ₹ 14,000
Prepare a cost sheet showing the price to be quoted per shirt which results in a profit of
20% on selling price.
Q 4. From the following, Prepare a cost sheet:
₹
Raw materials 6,000
Direct Wages 5,000
Factory Overheads 2,400
Opening Stock of Finished Goods 800 (200 kg)
Closing Stock of finished Goods …….(400 kg)
Sale of finished product 20,000 (3,000 kg)
Advertising and Selling Expenses 1,475
Profit desired is 30% on sales.

Q 5. Prepare a cost sheet from the following:

₹
Sales 8,00,000
Material 1-1-2008 40,000
Material 31-12-2008 32,000
Work-in-progress 1-1-2008 55,000
Work-in-progress 31-12-2008 72,000
Finished goods 1-1-2008 64,000
Finished goods 31-12-2008 1,51,000
Material purchased 1,52,000
Direct labour 1,45,000
Manufacturing overheads 1,08,000
Selling expenses 50,000
General office expenses 40,000
Q 6. The cost of sales of Product P is made up as follows:
₹
Materials used in manufacturing 54,000
Material used in primary packing 10,000
Material used in selling the product 1,500
Material used in factory 750
Material used in the office 1,250
Labour required in producing 10,000
Labour required for factory supervision 2,000
Direct expenses 5,000
Indirect expenses (factory) 1,000
Administration expenses 1,250
Depreciation on office building and equipment 750
Depreciation on factory building 1,750

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Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
Selling expenses 3,500
Freight on materials purchased 6,000
Advertising 1,250
Assuming that all the goods manufactured are sold, what should be the selling price to
obtain a profit of 20% on selling price?
Q 7. The following information has been taken from the costing records of a company
in respect of job number 123.
Materials ₹ 4,000
Wages:
Department A: 60 hours @ ₹ 3 per hour
Department B: 40 hours @ ₹ 2 per hour
Department C: 20 hours @ ₹ 5 per hour
Overheads for the three departments are estimated as follows:
Variable overheads:
Department A: ₹ 5,000 for 5,000 hours
Department B: ₹ 3,000 for 1,500 hours
Department C: ₹ 2,000 for 500 hours
Fixed Overheads:
₹ 14,000 for 7,000 hours.
You are required to calculate the cost of job number 123 and also calculate the price to
be charged so as to yield a profit of 25% on the selling price.
Q 8. The Sona Chemicals Company supplies you the following details from its cost
records:
₹
st
Stock of raw materials on 1 Jan, 2014 1,50,000
Stock of raw materials on 31st Jan, 2014 1,80,000
Direct wages 1,05,000
Indirect wages 6,000
Work in Progress 1-1-2014 56,000
Work in progress 31-1-2014 70,000
Purchase of raw materials 1,60,000
Factory rent, rates and power 30,000
Depreciation on plant and machinery 7,000
Carriage inward 3,000
Carriage outward 2,000
Advertising 5,000
Office rent 10,000
Traveler’s wages 12,000
Stock of finished goods on 1-1-2014 54,000
Stock of finished goods on 31-1-2014 ?
Bad debts 1,000
Interest on the hire-purchase instalment 2,000
Prepare a cost sheet giving the cost and profit. The company wants to have a profit of
25% on cost. The units manufactured during the month were 10,000 units.

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Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
Q 9. Bharat Engineering Works manufactured and sold 1,000 sewing machines in
2012. Following are the particulars from the records of the company. All figures are
given in Rupees:
Cost of materials 80,000 Wages paid 1,20,000
Manufacturing expenses 50,000 Salaries 60,000
Rent, rates and insurance 10,000 Selling expenses 30,000
General expenses 20,000 Sales 4,00,000
The company plans to manufacture 1,200 sewing machines in 2013.
The following additional information is supplied to you:
a) The price of materials will rise by 20% on the previous year’s level.
b) Wages rates will rise by 5%.
c) Manufacturing expenses will rise in proportion to combined costs of materials
and wages.
d) The selling expenses per unit will remain unchanged.
e) Other expenses will remain unaffected by the rise in output.
You are required to:
Determine the selling price and submit statement showing the price at which
machines would be sold so as to show a profit of 10% on the selling price.
Q 10. Following information in respect of Job No.333 is given:
Materials ₹ 5,800
Wages:
Department A- 100 hours @ ₹ 5 per hour.
Department B- 200 hours @ ₹ 3 per hour.
Overheads for the two departments are as maintained:
a) Variable overheads:
Department A- ₹ 10,000 for 5,000 direct labour hours
Department B- ₹ 30,000 for 10,000 direct labour hours
b) Fixed overheads:
₹ 50,000 for 50,000 normal working hours.
Calculate the cost of this job and also the price to be charged so as to give a profit of
20% on the selling price.
Q 11. Tirupati electronics produces a standard product. The following information is
given to you from which you are required to prepare cost sheet for the period ended on
31st March, 2013.
₹
Consumable material:
Opening stock 10,000
Purchases 85,000
Closing stock 4,000
Direct wages 20,000
Other direct expenses 10,000
Factory overheads 100% of direct labour
Office overheads 10% of work cost
Selling & distribution expenses 2 per unit sold
Units of finished product:
In the hand at the beginning of the period (value ₹ 16,000) 1,000 units

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Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
Production during the period 10,000 units
In the hand at the end of the period 2,000 units
Also, find out the selling price per unit on the basis that the profit margin is uniformly
made to yield a profit of 20% of the selling price. There was no work-in-progress at the
beginning or at the end of the period.

Q 12. Compute factory cost from the following details:-

Raw material consumed Rs 50,00,000

Direct wages Rs20,00,000

Direct expenses Rs 10,00,000

Factory expenses 80% of direct wages

Opening stock of work in progress Rs 15,00,000

Closing stock of work in progress Rs 21,00,000

Q 13. Prepare cost sheet from the following particulars:

Raw material purchased Rs. 2,40,000

Paid freight charges Rs 20,000

Wages paid to laborers Rs 70,000

Directly chargeable expenses Rs 50,000

Factory on cost 20% of prime cost

General and administrative expenses 4% of factory cost

Selling and distribution expenses 5% of production cost

Profit 20% on sales

Opening stock (Rs.) Closing stock (Rs.)

Raw material 30,000 40,000

Work in progress 35,000 48,000

Finished goods 40,000 55,000

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Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
Q 14. Calculate (a) Cost of raw-materials consumed; (b) Total cost of production;
(c) Cost of goods sold and (d) The amount of profit from the following particulars:
Opening Stock
: Raw-materials 2,00,000
: Finished goods 1,60,000
Closing Stock
: Raw-materials 1,60,000
: Finished goods 2,00,000
Raw-materials-purchased 20,00,000
Wages paid to labourers 8,00,000
Chargeable expenses 80,000
Rent, rates and taxes 2,00,000
Power 96,000
Factory heating and lighting 80,000
Factory insurance 40,000
Experimental expenses 20,000
Sale of wastage of material 8,000
Office management salaries 1,60,000
Office printing and stationery 8,000
Salaries of salesman 80,000
Commission of travelling agents 40,000
Sales 40,00,000

Q 15. Prepare a statement of cost using the following information:

Particulars Amount (Rs.)
Cost of raw materials on June 1 60,000
Purchase of raw materials during the month 9,00,000
Wages paid 4,60,000
Factory overheads 1,84,000
Cost of work in progress on June 1 24,000
Cost of raw materials on June 30 30,000
Cost of stock of finished goods on June 1 1,20,000
Cost of stock of finished goods on June 30 1,10,000
Selling and distribution overheads 40,000
Sales 18,00,000
Administration overheads 60,000
Ans- (Prime cost: Rs. 13,90,000, Factory cost: Rs. 15,98,000, cost of production of goods
manufactured: Rs. 16,58,000, cost of production of goods sold: Rs. 16,68,000, cost of sales:
Rs. 17,08,000, Profit: Rs. 92,000)

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