Standard Format of Cost Sheet

Details Total Cost (Rs)

Opening inventory of raw materials
Add Purchases of raw materials
Inward Logistics, Inward
Add Expenses on Purchases of raw materials
Quality Check Cost, etc.
Less Closing inventory of raw materials

Material Cost for Current

Cost of material consumed
Production

Directly Responsible for

Add Direct Wages
Production
Rare in make to stock
business. Only in
Add Direct Expenses (All other Direct Expenses)
Project/Make to Order
Business

Total Direct Cost (crude

Prime Cost (Total Direct Cost) estimate of Total Variable
Manufacturing Cost)

On basis of absorbed
overheads (Actual No. of
Add Factory Overhead Expenses (Production
units of allocation base *
Overheads)
Allocation rate per unit of
Allocation base)
Add Opening inventory of Work in Progress
Less Closing inventory of Work in Progress

Factory Cost (or Works Cost) - This corresponds

Production Cost of Current
to COGS in P&L for Gross Profit Calculation Year Production that is
available for Sale
 On basis of absorbed
overheads (Actual No. of
Add Administrative & Support Overheads units of allocation base *
Allocation rate per unit of
Allocation base)

Mfg & Admin Cost of

Completed Finished Goods
Cost of Production
Manufactured during the
year

Add Opening inventory of finished goods

Less Closing inventory of finished goods At Cost

Mfg and Admin Cost of

Cost of Goods Sold (Different from COGS in
Finished Products Sold
P&L)
during the year

On basis of absorbed
overheads (Actual No. of
Add Selling & Distribution Overheads units of allocation base *
Allocation rate per unit of
Allocation base)

Operating Cost of Finished

Cost of Sales Products sold during the
year

Add: Under-Absorbed Overheads

Less: Over-Absorbed Overheads

Actual Operating Cost for

Adjusted Cost of Sales units sold during the year
(Same as Op. Exp in P&L)

Net Operating Profit (or Loss) {Sales - Adjusted Operating Profit as per
Cost of Sales} P&L

SALES Revenue
Including Inventory - Average Cost for the whole year - Avg Price for the year

Specific Order - Average Cost for that order

Finished Goods Inventory Valuation

Material Cost Ideal
Prime Cost D. Labor is usually a Fixed Cost
Factory Cost Include Fixed Costs
Cost of Production Include Fixed Costs

Fixed Costs are costs of a period.. Not product costs

Reconciling Profit Figures

As per Cost Sheet

Revenue Same
- Op. Expenses
Variable Mfg Cost
Absorbed Overheads
(-) Over-Absorbed Overheads
(+) Under-Absorbed Overheads

Operating Profit Same

Nature of Difference
Absorbed vs Incurred

Op. Exp as per Cost Sheet

Absorbed > Incurred Higher than P&L
Op. Exp as per Cost Sheet
Absorbed < Incurred Lower than P&L

Reconcile Op. Cost as per P&L with Op. Cost as per Cost Sheet
Starting Point Op. Cost as per Cost Sheet

- Over Absorbed Overheads

+ Under-Absorbed Overheads

Ending Point Op. Cost as per P&L

Revenue - Operating Cost = Operating Profit

Operating Cost = Mfg + Admin + S&M

 Cost Per Unit (Rs) Pure Service Firm

Materials - Software Licenses,

Internet

p.u. = Cost of Materials / No. of Marginal Cost School - Inventory

Inventory Cost Calculation
units produced at variable material cost

(not transferring current year

f.cost to next year)

Salaries of Tech Team

at a Project Level - Special

License for a Project

p.u. = Prime Cost/No. of units Total Mfg Cost = Prime Cost +

Inventory Cost Calculation
produced Factory Overhead

(includes fixed cost element.

Transferring some part of current
year f.cost to next year)

Project Manager Salaries,

Standard Cost
Depreciation of Equipment

p.u. = Factory Cost/No.of units Prod'n cost of max units available

Inventory Cost Calculation
of Completed F.G. Mfd for sale

(includes fixed cost element.

Transferring some part of current
year f.cost to next year)
 Other Employee Salaries
Standard Cost (excluding S&M employee
Salaries), etc.

p.u. = COP/No.of units of Does not correspond directly to

Inventory Cost Calculation
Completed F.G. Mfd any item in P&L

(includes fixed cost element.

Transferring some part of current
year f.cost to next year)
Incentives for over-production
At what rate should we value cl.
Inv. of F.Goods

Total Cost = Resource Vol * Cost p.u. of resourc

Salaries of S&M , other selling

Standard Cost
related expenses

P&L - Exp as incurred (actuals)

Total Operating Expenses as per Not Same as Total Op. Exp as
Cost Sheet per P&L

Same as per P&L

Transferring some part of this period's F.Cost to next period
Transferring some part of this period's F.Cost to next period
Transferring some part of this period's F.Cost to next period

Encourages over-production
& inflation of current profit

As per P&L

Same

Variable Mfg Cost

Incurred (Accrued) Overheads

Same

Reconciliation

Reduce Cost in Cost Sheet

Increase Cost in cost sheet

Difference between amount incurred as per P&L and amount of overhead allocated as per cost sheet
Action for reconciling
Allocated Overhead > Actual Cost as
per P&L Reduce the difference
Allocated Overhead < Actual Cost as
per P&L Add the difference

Difference = Allocated Overhead - Actual Overhead as per P&L

Landed Cost of Materials

Anything other than this will

incentivize over-production

Employee Salaries

Customization

Total Cost incurred on current

Current Production
year production

What is the standard rate at

which you should have incurred
these overheads

Difference with P&L COGS due

to overhead at absorbed rates in
Cost Sheet vs Actual in P&L
 Cost Charged to Revenue
Division (S&M)

Vol * Cost p.u. of resource

Deviation due to difference in rates of cost

Op. Profit = Revenue - Total Op.
Exp
Difference is +ve Over-Absorbed Overheads Charged More to Cost Sheet

Difference is -ve Under-Absorbed Overheads Charged Less to Cost Sheet

Finished Goods
Opening Qty
+Production of Fresh FG
-Sales Qty of FG
=Closing Qty of FG

Directly involved in Production

All other employees (S&M,

Admin & Support)
 In P&L - Not Shown Separately

In P&L - Not Shown Separately

Prod'n = 20000 units

O/h Allocation Rate = 50 p.u. of product =20000*50

Standard for Overhead Allocation base

per unit of Product * Standard
In P&L - Actuals
Overhead Allocation Rate per unit of
Overhead Allocation base)

Mfg. Cost of Current Production of

Finished Products
Support Division Costs first absorbed by
Production only and then trfd to Sales &
Mktg

Mfg + Admin Cost of Current Production

As per P&L - Lower of Cost or Net Realizable Value

COGS as per P&L is only Mfg Cost

Different from Op. Exp in P&L

Same as Op. Exp in P&L

Accounts for Difference in Op. Pft
Cost Variance
Cost Variance

What is it called Effect on Cost Sheet Profit

Over-Absorbed Overheads Cost Sheet Op. Pft < P&L Op. Pft

Under-Absorbed Overheads Cost Sheet Op. Pft > P&L Op. Pft
Landed Cost - Price to Vendor + Expenses related to Purchase

Fin Acctg - Purchase Cost includes Expenses on Purchase

Cost Acctg - Shown Separately

Inward Logistics
Quality Testing for Materials

Procurement Costs

Direct Expense - Incurred specifically for a particular product/service

More Common in Make to Order or Projects

Total Mfg Cost = Materials + Labor + Production Overheads

Total Mfg Cost = Materials + Conversion Cost
Conversion Cost = Direct Labor + Direct Expenses + Production Overheads
Terms of Sales - Incoterms

Ex-Works Customer Takes

Avg Mfg Cost p.u. for Inventory Delivery Delivery from the
Valuation Terms Mfrs Premises

Prime Cost
+ Factory Overheads
= Costs incurred on units that have entered the mfg process this year opening incomplete products/services

- Closing Inventory of WIP closing incomplete products/services

+ Opening Inventory of WIP

Factory Cost Costs incurred in the manufacturing premises on finished products manufactured durin

Add: Administrative Overheads

Mfg & Admin Cost of Finished Goods Manufactured during the year

Op.Inv of Finished Products 500 units

+ Mfg Cost of finished products during the year 10000 units

= Cost of Maximum Units available for sale 10500 units

- Cl. Inv of Finished Products 1000 units

= Finished Products Sold during the year 9500 units

 Core Activities
Operating Financial

Manufacturing
Selling & Mktg
Admin & Support

Opening
Pricing Inventory
different Completed 1000

+ Fresh Units completed 20000

 Closing Incomplete 2000
omplete products/services

mplete products/services

hed products manufactured during the year

 Items Amt. (Rs)
Sales
Less: Expenses
Raw Materials Purchased 180,000
Direct Labor Cost 70,000
Indirect Labor Cost 15,000
Stores & Spares Consumed 10,000
Depreciation on Factory Equipment 30,000
Depreciation on Delivery Van 10,000
Insurance on Factory Premises 5,000
Salaries of Selling & Administration Personnel 40,000
Advertisement 50,000
Interest on Loans 15,000
Rent on Factory Premises 40,000
Rent for Corporate Head Office 10,000

Net Loss

Details Total Cost (Rs)

Opening inventory of raw materials 5,000
Add Purchases of raw materials 180,000
Add Expenses on Purchases of raw materials -
Less Closing inventory of raw materials 10,000

Cost of material consumed

Add Direct Wages 70,000

Add Direct Expenses -

Prime Cost

Add Factory Overhead Expenses

Indirect Labor Cost 15,000
Stores & Spares Consumed (80%) 8,000
Depreciation on Factory Equipment 30,000
Insurance on Factory Premises 5,000
Rent on Factory Premises 40,000

Add Opening inventory of Work in Progress -

Less Closing inventory of Work in Progress 2,500
Factory Cost (or Works Cost)

Add Administrative Overheads

Stores & Spares Consumed (20%) 2,000
Salaries of Selling & Administration Personnel (40%) 16,000
Rent for Corporate Head Office 10,000

Cost of Production

Add Opening inventory of finished goods 10,000

Less Closing inventory of finished goods 5,000

Cost of Goods Sold

Add Selling & Distribution Overheads

Depreciation on Delivery Van 10,000
Salaries of Selling & Administration Personnel 24,000
Advertisement 50,000

Cost of Sales

Add: Under-Absorbed Overheads -

Less: Over-Absorbed Overheads -

Adjusted Cost of Sales

Net Operating Profit (or Loss)

SALES

Budgeted Cost Sheet - Budgeted Cost p.u.

Budgeted Sales Volume & Profit Target - Budgeted Selling price p.u.

Reconciliation

Net Loss as per Cost Sheet (7,500)

Interest on Loans (15,000)

Increase in R.M. Inventory (5,000)
Increase in WIP Inventory (2,500)
Reduction in F.G. Inventory 5,000

Net Loss as per Given P&L (25,000)

Net Loss as per P&L (25,000)
Add :
Interest Cost as per P&L 15,000
Change in Inventory of Raw Materials 5000
Change in Inventory of WIP 2500

Less:
Change in Inventory of F.Goods -5000

Net Loss as per Cost Sheet (7,500)

Reconciliation
Loss as per cost Sheet

Add: (Expenses that are lower in Cost Sheet than in P&L)

Interest Expense 15000
Increase in WIP 2500
Increase in R.M Inventory 5000

Less: (Expenses that are higher in Cost Sheet than in P&L)

Reduction in F.G. Inventory 5000

Loss as per P&L

Cost of Inventory
FIFO
LIFO
Weighted Average
Increase in Inventory Reduces Expenses
Decrease in Inventory Increases Expenses
As per Cost Sheet

Change in Inventor
WIP +2500
F.G. -5000
R.M. +5000

COGS as per P&L

Mfg Exp
Add: Changes in Inventory of F.G., WIP (Op-Cl)
+ve Op>Cl
-ve Cl>Op
 Amt. (Rs)
450,000

R.M. Purchased (Cost of Materials Consumed)

Direct Wages
Factory O/h
Factory O/h, Admin O/h
Factory O/h
Selling & Distribution O/h
Factory O/h
Selling & Distribution O/h, Admin O/h
Selling & Distribution O/h
Not in Cost Sheet
Factory O/h
475,000 Admin O/h

-25,000

Total Cost (Rs)

Change in Inventory of R.M. (5,000)

175,000

70,000

245,000

98,000

(2,500)
 340,500
NWC = CA - CL
28,000 10000
Inventory Pile-Up
Money blocked NWC Increase
Value Destruction for Shareholders
Inventory Holding Cost
Risk of Inventory Damage, Theft, etc
368,500

5,000 Cost as per Cost sheet higher than P&L

373,500

84,000

457,500 Operating Expense for revenue generated during the year

457,500

(7,500)

450,000

Added to Expense - Reduce Profit or Increase Loss

Reduce from Expense - Increase Profit or Reduce Loss
Zero in Cost Sheet. 15000 in P&L Add Expense of 15000
Increase in R.M. Inventory by 5000. Recorded in Cost Sheet. Not in P&L. Reduced Exp as per Cost Sheet. Not in P&L
Increase in WIP Inventory by 2500
Reduction in F.G. Inventory by 5000. Cost Sheet Expense higher than P&L Expense

(25,000)
Not a Cost Sheet item
Increase in R.M. Inventory not reduced from P&L. Therefore Cost as per P&L higher
Increase in WIP Inventory not reduced from P&L. Therefore Cost as per P&L higher

Decrease in F.G. Inventory not been added to P&L. Therefore Cost as per P&L lower

-7,500

7500

22500 Add back

Exp as per Cost Sheet Lower than Exp as per P&L

-5000 Reduce

25000

First in First Out

Last in First Out
Weighted Average
Impact on Cost Sheet Reconciliation with P&L
Reduce Cost as per Cost Sheet Increase Cost as per Cost Sheet by 2500
Increase Cost as per Cost Sheet Decrease Cost as per Cost Sheet by 5000
Reduce Cost as per Cost Sheet Increase Cost as per Cost Sheet by 5000

Inventory Drawdown Cost of Current Production Current F.G Sold

Inventory Increase Cl. Inv. Of F.G.

Units Available for Sale Current Prod'n

+ Op Inv of F.G.
Target Profit Margins
Target PAT (Target ROE)
Interest to be paid
Income Tax

CA 50000
CL 40000 Funding from S.T. Sources
 NWC 10000 Arrange Funding
L.T. Funding
Equity Costliest Funding Source

ost Sheet. Not in P&L

Reduce Cost of Next year

Add Cost of This Year

 Particulars Amount (Rs.)
Purchase of Raw Materials 132,000
Direct Wages 110,000
Rent, Rates, Insurance, and Works (Factory) Overhead 44,000
Carriage Inward 1,584
Stock on 1-1-1993
Raw Materials 22,000
Finished Goods (1600 tonnes) 17,000
Work-in-progress 5,280
Stock on 30-6-1993
Raw Materials 24,464
Finished Goods (3200 tonnes) 35,200
Work-in-progress 17,600
Factory Supervision 8,800
Sales – Finished Goods 330,000

Selling & Advertising expenses at standard cost amounted to 75 paise per tonne sold. 25600 tonnes of the commodity were sold
Actual S&D Overheads amounted to Rupees 18,000 P&L
Actual Factory Overheads amounted to Rupees 55,000 P&L

Details Total Cost (Rs)

Opening inventory of raw materials 22,000
Add Purchases of raw materials 132,000
Add Expenses on Purchases of raw materials 1,584
Less Closing inventory of raw materials 24,464

Cost of material consumed

Add Direct Wages 110,000

Add Direct Expenses

Prime Cost

Add Factory Overhead Expenses

Rent, Rates, Insurance, and Works Overhead 44,000

Factory Supervision 8,800

Add Opening inventory of Work in Progress 5,280

Less Closing inventory of Work in Progress 17,600

Factory Cost (or Works Cost)

Add Administrative Overheads

Cost of Production

Add Opening inventory of finished goods 17,000

Less Closing inventory of finished goods 35,200

Cost of Goods Sold

Add Selling & Distribution Overheads

Selling & Advertising Expenses 19,200

Cost of Sales

Add: Under-Absorbed Overheads 2,200

Less: Over-Absorbed Overheads (1,200)

Adjusted Cost of Sales

Net Operating Profit (or Loss)

SALES

As per Cost Sheet

Factory Overhead 52800
S&D Overhead 19200

Deviation between exp

Why Under-absorbed or over-absorbed and actual
Resource Usage
Cost per unit of resource
 Cost of Materials Consumed
Direct Wages
Factory Overhead
"Inward Logistics" Expenses on Purchases of raw materials

Inward Logistics Delivery Centers

Source Facilities Customer Dropshipping
Outward Logistics

Factory Overhead

sold. 25600 tonnes of the commodity were sold during these 6 months.
19200

Total Cost (Rs) Budgeted

Absorbed Actual Difference
19200 18000 1200 S&D
52800 55000 -2200 Factory

131,120 120000

110,000

241,120

52,800 55000 Cost Sheet overheads lower by 2200 - Underabsorbed overheads

On basis of Std. Cost

On basis of Std. Cost

(12,320) Change in Inventory of WIP = Opening - Closing

281,600
 -

281,600

(18,200) Change in Inventory of F.G

263,400

19,200 18000 Cost sheet has 1200 more than P&L - Over-absorbed Overheads

On basis of Std. Cost

282,600

1,000

283,600 Total Op. Cost

Target Compare each item of Realized Cost Sheet with Budgeted C
46,400 14.06% 15% Deviations Items responsible for profit margin deviati

330,000

Incurred as per P&L

55000 2200 Under-absorbed Add to Cost Sheet
18000 -1200 Over-absorbed Reduce from Cost Sheet

Variances Variance Analysis

Efficiency
Resource Procurement
 Over-absorbed (Absorbed > Actual)
Under-absorbed (Absorbed < Actual)

rbed overheads
bed Overheads

Cost Sheet with Budgeted Cost Sheet

ble for profit margin deviation
Selling and administrative salaries 110,000
Insurance, factory 8,000
Utilities, factory 45,000
Purchases of raw materials 290,000
Indirect labor 60,000
Direct labor ?
Advertising expense 80,000
Cleaning supplies, factory 7,000
Sales commissions 50,000
Rent, factory building 120,000
Maintenance, factory 30,000

Beginning of the Year End of the Year

Raw materials 40,000 10,000
Work in process ? 35,000
Finished goods 50,000 ?

The total manufacturing costs for the year were Rs683,000; the goods available for sale totaled Rs740,000; and the cost of good

Details Total Cost (Rs) Total Cost (Rs)

Opening inventory of raw materials 40,000
Add Purchases of raw materials 290,000
Add Expenses on Purchases of raw materials -
Less Closing inventory of raw materials 10,000

Cost of material consumed 320,000

Add Direct Wages 93,000 93,000

Add Direct Expenses

Prime Cost 413,000

Add Factory Overhead Expenses 270,000

Insurance, factory 8,000

Utilities, factory 45,000
Indirect labor 60,000
Rent, factory building 120,000
Maintenance, factory 30,000
Cleaning supplies, factory 7,000

Add Opening inventory of Work in Progress 42,000

Less Closing inventory of Work in Progress 35,000 7,000

Factory Cost (or Works Cost) 690,000

Add Administrative Overheads -

Cost of Production 690,000

Add Opening inventory of finished goods 50,000

Less Closing inventory of finished goods 80,000 (30,000)

Cost of Goods Sold 660,000

Add Selling & Distribution Overheads 240,000

Selling and administrative salaries 110,000

Sales commissions 50,000
Advertising expense 80,000

Cost of Sales 900,000

Add: Under-Absorbed Overheads

Less: Over-Absorbed Overheads -

Adjusted Cost of Sales 900,000

Net Operating Profit (or Loss) #REF!

SALES #REF!

Calculations 1
Goods Available for Sale 740,000 Given

Opening Inventory of Finished Goods 50,000 Given

+ Cost of Production 690,000 Balancing Figure
Calculations 2

Cost of Production 690,000 Calculated

+ Opening Inventory of Finished Goods 50,000 Given
-Closing Inventory of Finished Goods 80,000 Balancing Figure

= Cost of Goods Sold 660,000 Given

Calculations 3:

Cost of Production 690,000 Calculated

Prime Cost 413,000 Calculated

+ Factory Overhead 270,000 Calculated
+ Opening WIP 42,000 Balancing Figure
-Closing WIP 35,000 Given

690,000
d Rs740,000; and the cost of goods sold totaled Rs660,000.

Cost of material consumed 320000

Insurance, factory 8000
Utilities, factory 45000
Indirect labor 60000
Rent, factory building 120000
Maintenance, factory 30000
Cleaning supplies, factory 7000

590000

Direct Wages 93000

690,000.00

660,000.00
COGS = COP +Op.Inv-Cl.Inv
Cl. Inv - COP + Op. Inv - COGS

COP = PC + FO + OW-CW
OW =COP + CW - FO - PC
 Particulars Amount (Rs.)
Output of structural material per year (tons) 20,000
Yearly consumption of raw materials 20,000,000 Prime Cost
Yearly wage bill 25,000,000 Prime Cost
Yearly depreciation of plant 5,000,000 Factory Overhead
Annual dividend to shareholders 3,000,000 Not an Expense
Income tax (annual) 5,000,000 Not Op Expense
Salaries of supervisory staff for one year 5,000,000 Admin
Remuneration & perquisites of Managing
100,000
Director for the year Admin

20% Margin on Sales

Raw Materials Consumed 20,000,000

+ Wages 25,000,000

=Prime Cost 45,000,000

+ Factory Overheads 5,000,000

Yearly depreciation of plant 5,000,000

Factory Cost 50,000,000

+ Administrative Expenses
Salaries of supervisory staff for one year 5,000,000
Remuneration & perquisites of Managing
Director for the year 100,000

Cost of Sales for 20000 tons 55,100,000

Cost per Ton 2755 2755

+ Profit 688.75 551

Selling Price per Ton 3444 3306

Profit Margin 20.00% 16.67%

Cost + Profit = Sales
0.8x + 0.2x = X
Profit/Cost
=0.2/0.8
25% of Cost
Cool-Wind Ltd. manufactures fans that are sold at Rs. 400 per piece. The cost of sale comprises 40% materials, 30% wages, an
An increase in material price by 25% and the wage rate by 10% is expected in the forthcoming year as a result of which profit p

Cost of Sale x Post Change

Materials .4x .5x

Wages .3x .33x
Overheads .3x .3x

Total x 1.13x

Profit 400 -x 400-1.13x

Reduction in Profit 39%

400-1.13x = 0.61*(400-x)

400-1.13x = 244-.61x

156 = .52x

x = 300
es 40% materials, 30% wages, and 30% overheads.
year as a result of which profit per unit would decline by 39% from the current levels.

Pre-Change Post-Change

120 150
90 99
90 90

300 339
Direct materials purchased 240,000
Work-in-process inventory, 3/1/2011 70,000
Direct materials inventory, 3/1/2011 25,000
Finished goods inventory, 3/1/2011 320,000
Conversion Costs 660,000
Total manufacturing costs added during
840,000
the period
4 times direct
Cost of goods manufactured
materials used
Gross margin as a percentage of revenues 20%
Revenues 1,037,500

Cost of Goods Manufactured 830,000 Calculated

Revenue 1,037,500 Given
-Gross Profit 207,500 Given

Direct Materials Consumed 207,500 Calculated

Opening Inventory of Materials 25,000 Given
+ Purchase of Materials 240,000 Given
-Direct Materials Consumed 207,500 Calculated
= Closing Inventory of Materials 57,500

Manufacturing Cost Added 840,000 Given

Direct Materials Consumed 207,500 Calculated

+ Conversion Cost 660,000 Given
+ Opening Inventory of WIP 70,000 Given
-Closing Inventory of WIP 97,500 Balancing Figure

Cost of Goods Manufactured 830,000 Calculated

Manufacturing Cost Added 840,000 Given

+ Opening Inventory of Fin. Goods 320,000
- Closing Inventory of Fin. Goods 330,000 Balancing Figure
Quick Cross-Verification

Materials Consumed 207,500

Conversion Cost 660,000
Changes in WIP Inventory -27,500
Changes in Fin Goods Inventory -10,000
+ Gross Profit 207,500
= Revenue 1,037,500
COGS as Rev- COP

COGS as per P&L

-Rev-COP +opIn ov FG-cl In FG

COGS as per P&L