Managerial Accounting

Session – IX – Cost Sheet

 Cost Heads – Direct Material

Direct Material

• Where nexus can be established

with Final Product

• Direct Material
• Cost of Material
• Freight Inwards
• Insurance
• Trade Discount (To be deducted)
• Duties & Taxes
 Cost Heads – Direct Labour & Expenses

Direct Labour Direct Expenses

• Cost of employees who directly engaged in • Incurred to manufacture a product where

production nexus can be established

• Direct Labour • Power & Fuel

• Wages & Salary • Royalty
• Overtime • Hire Charges
• Bonus • Technical Assistance
• Contributions to funds
• Other Benefits
 Prime Cost

Total of Direct Material, Direct Labour and Direct Expenses

 Works cost

It is the total of prime cost and Factory related cost and overheads

• Factory Overheads –

• Consumables, Spares & stores

• Depreciation of Plant & Machinery
• Repair & Maintenance
• Indirect Employee Cost
 Cost of Production

Its total of Works Cost and Quality Cost, Research Cost, Administrative Overheads
(Related to production), Packing costs (Primary Cost) etc.

• Quality Cost – Quality testing costs

• Research & Development Cost – For Improvement in products

• Administrative Overheads – Related to production like indirect expenses

• Packing Cost – Cost of Packing Material (Primary)

 Cost of Sales

Its total of Cost of Production, Administrative Overheads (General), Selling

Overheads, Packing Cost (Secondary) and Distribution overheads

• Administrative Overheads – Rent of office building, depreciation of office

equipment, Salaries of office employees, Taxes etc.

• Selling Overheads – Salary of Sales persons, Cost of advertisement & Marketing

• Packing Cost – Cost of Packing Material (Secondary)

• Distribution Overheads – Transportation, Freight, Insurance, Depreciation of

transport vehicle
Cost Sheet
Cost Sheet
 Other Items
• Abnormal Costs – Not to be included in Cost Sheet (For e.g. Cost
related to Covid protection

• Subsidy/Grants – To be reduced from the head to which it pertains

• Penalty/Fine – To be included in Cost

• Finance Cost – Interest, Dividend not to be included in cost sheet

Learning Summary