COST SHEET –

calculating the cost of a Product

Dr. Ashok Panigrahi

 Calculation of Cost- A Case
• Suppose a company located in Mumbai produces a
mobile at a cost of Rs. 5000 and it sells in its Mumbai
showroom at Rs. 6000, after adding Rs.500 as
showroom expenses and Rs.500 as profit. What would
be the selling price of that mobile in following cases:
• Sent to Delhi with a transportation cost of Rs.500,
showroom expenses in Delhi is Rs. 700 and profit
expected is Rs.500.
• Exported to US, where the export expenses is Rs.2000,
selling expenses Rs.500 profit expected in US is Rs.1000.
• What would be the selling price if a buyer want to take
delivery from the factory directly, assuming company
want to charge the regular profit of Rs.500 per mobile.
• Meaning of Cost Sheet:
• Cost Sheet is a statement which presents detailed information relating to the various
stages of cost. It also shows the total cost of the product manufactured during a
particular period of time. Thus, the cost sheet is prepared for a particular period of
time monthly, quarterly, yearly etc.
• Objects of Preparing a Cost Sheet:
• A cost sheet is prepared for:
• (i) The total cost and cost per unit of the product can be ascertained;
• (ii) It helps the management to fix up the selling price on the basis of the cost per unit
of the product after charging certain percentage of profit on cost;
• (iii) It also helps the management presenting a comparative study of current cost with
the existing cost per unit;
• (iv) After proper comparison the management can take the corrective measures;
• (v) It helps the management while formulating suitable production policy;
• (vi) It is very helpful to submit a price quotation for tenders; and
• (vii) It also helps the management by supplying suitable information for management
control.
 METHOD OF PREPARATION OF COST SHEET

• Step-1: Calculation of Materials Consumed:

Materials Consumed = (Opening stock of raw materials + Purchase of raw
material + Purchase Expenses) - (Closing stock of raw material).
• Step-2: Calculation of Prime Cost:
Prime Cost = Materials consumed + Direct Labour + Direct expenses.
• Step-3: Calculation of Factory cost:
Factory Cost or Works Cost = Prime cost + Factory overheads +
Opening WIP – Closing WIP
• Step-4: Calculation of Cost of Production
Cost of Production = Factory cost + Office and Administration overheads.
• Step-5: Calculation of Cost of Sales or Total Cost
Total Cost = Cost of production + Selling and distribution overheads + Opening
stock of Finished Goods – Closing Stock of Finished Goods
• Step-6: Calculation of Total Sales
Total Sales = Total cost + net profit.
FORMAT OF COST SHEET
Conti….
The accounts of Basudev Manufactures Ltd. for the year ended 31st
December 1988 show the following:

(a) Material Consumed

(b) Prime Cost
(c) Works Cost
(d) Cost of Production
(e) Total Cost and
(f) Sales.
The cost of sale of production 'A' is made up as follows:-

Material used in manufacturing Rs 5,500

Material used in packing material Rs I.000
Material used in selling the product Rs 150
Material used in the factory Rs 75
Material used in the office Rs 125
Labour required in production Rs 1,000
Labour required for supervision in factory Rs 200
Expenses direct factory Rs 500
Expenses indirect factory Rs 100
Expenses office Rs 125
Depreciation of office building Rs 75
Depreciation on factory plant Rs 175
Selling expenses Rs 350
Freight on material Rs 500
Advertising Rs 125

Assuming that all products manufactured are sold, what should be the selling price be
fixed to obtain a profit of 20% on selling price.
Mr. Zia furnishes the following data related to the manufacture of a standard product of
August 2008
Raw material consumed- Rs 15,000
Direct labour – Rs. 5,000
Direct Expenses – Rs.4,000
Machine hours worked - 900 Hours
Machine hour rate - Rs 5
Administration overheads - 20% of works cost
Selling overheads - Rs 0.50 per unit
Unit produced: 17,100 Units
Unit sold - 16,000 @ Rs 4 per unit
You are required to prepare a cost sheet from the above showing:-
(a) The cost per unit
(b) Cost per unit sold and profit for the period
You are required to compute the cost per units, selling price per unit and
determine the profitability assuming sale of 3000 units. Provided herewith the
information for production of one batch of tablets.

Information of Costs per Unit

 Material Costs – Rs. 10.50
 Labour Costs – Rs. 5
 Packaging Costs – Rs. 6
 Other variable Overheads – Rs. 5
 Total Fixed Costs are Rs. 12000
 Assume Margin of 25% of the Selling price.