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Cost Sheet
Cost sheet is a document that provides for the assembly of an estimated detailed cost in respect of cost centers and cost units. It analyzes and classifies in a tabular form the expenses on different items for a particular period. Additional columns may also be provided to show the cost of a particular unit pertaining to each item of expenditure and the total per unit cost.
Cost sheet may be prepared on the basis of actual data (historical cost sheet) or on the basis of estimated data (estimated cost sheet), depending on the technique employed and the purpose to be achieved.
The techniques of preparing a cost sheet can be understood with the help of the following examples.
Example 1
Following information has been obtained from the records of left center corporation for the period from June 1 to June 30, 1998.
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Cost of raw materials on June 1,1998 |
30,000 |
|
Purchase of raw materials during the month |
4,50,000 |
|
Wages paid |
2,30,000 |
|
Factory overheads |
92,000 |
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Cost of work in progress on June 1, 1998 |
12,000 |
|
Cost of raw materials on June 30, 1998 |
15,000 |
|
Cost of stock of finished goods on June 1, 1998 |
60,000 |
|
Cost of stock of finished goods on June 30, 1998 |
55,000 |
|
Selling and distribution overheads |
20,000 |
|
Sales |
9,00,000 |
|
Administration overheads |
30,000 |
Prepare a statement of cost.
Solution
Statement of cost of production of goods manufactured for the period ending on June 30, 1998.
Example 2
From the following information, prepare a cost sheet showing the total cost per ton for the period ended on December 31, 1998.
| Raw materials | 33,000 | Rent and taxes (office) | 500 |
| Productive wages | 35,000 | Water supply | 1,200 |
| Direct expenses | 3,000 | Factory insurance | 1,100 |
| Unproductive wages | 10,500 | Office insurance | 500 |
| Factory rent and taxes | 2,200 | Legal expenses | 400 |
| Factory lighting | 1,500 | Rent of warehouse | 300 |
| Factory heating | 4,400 | Depreciation-- | -- |
| Motive power Haulage | 3,000 | Plant and machinery | 2,000 |
| Director’s fees (works) | 1,000 | Office building | 1,000 |
| Directors fees (office) | 2,000 | Delivery vans | 200 |
| Factory cleaning | 500 | Bad debt | 100 |
| Sundry office expenses | 200 | Advertising | 300 |
| Expenses | 800 | Sales department salaries | 1,500 |
| Factory stationery | 750 | Up keeping of delivery vans | 700 |
| Office stationery | 900 | Bank charges | 50 |
| Loose tools written off | 600 | Commission on sales | 1,500 |
The total output for the period has been 10000 tons.
Solution : Cost sheet for the period ended on December 31, 1998
| Raw materials | 33,000 | 71,000 |
| Production wages | 35,000 | |
| Direct expenses | 3,000 | |
| Prime cost | ---- | |
| Add--works overheads: | 10,500 | |
| Unproductive wages | 7,500 | |
| Factory rent and taxes | 2,200 | |
| Factory lighting | 1,500 | |
| Factory heating | 4,400 |
|
Motive power Works cost Office cost |
3,000 2,000 300 |
37,050 1,08,050 5,550 1,13,600 4,600 1,18,200 |
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FAQs on Preparation of Cost Sheet - Overheads, Cost Management - Cost Management - B Com
| 1. What is a cost sheet and how is it prepared? |  |
Ans. A cost sheet is a statement that summarizes the costs incurred by a company during a specific period. It includes both direct costs (such as raw materials and labor) and indirect costs (such as overheads). To prepare a cost sheet, the company needs to gather information about all the costs related to production, allocate them to different cost centers, and then calculate the total cost for each center. These costs are then summarized and presented in the cost sheet.
| 2. What are overheads in the context of a cost sheet? | |
Ans. Overheads refer to the costs that are not directly attributable to a specific product or service. They include expenses such as rent, utilities, salaries of support staff, and depreciation of assets. In the context of a cost sheet, overheads are allocated to different cost centers based on their usage or allocation bases. These overhead costs are then added to the direct costs to calculate the total cost of production.
| 3. How can cost management help companies improve their profitability? | |
Ans. Cost management refers to the strategies and techniques implemented by companies to control and reduce their costs. By effectively managing costs, companies can improve their profitability in several ways. Firstly, cost management helps identify areas of unnecessary expenditure and eliminate them, leading to cost savings. Secondly, it allows companies to optimize their resource allocation, ensuring that resources are used efficiently. Lastly, cost management enables companies to make informed pricing decisions, ensuring that their products or services are priced competitively in the market.
| 4. What are the key components of a cost sheet? | |
Ans. The key components of a cost sheet include direct costs, indirect costs (overheads), and the total cost of production. Direct costs refer to the costs that can be directly attributed to the production of a specific product or service, such as raw materials and direct labor. Indirect costs are the overhead costs that are incurred to support the production process but cannot be directly linked to a specific product. These include items like rent, utilities, and administrative expenses. The total cost of production is the sum of the direct costs and the allocated overhead costs.
| 5. How can a cost sheet be used for decision-making? | |
Ans. A cost sheet provides valuable information that can be used for decision-making in various ways. Firstly, it helps in determining the cost of production for a specific product or service, which is important in pricing decisions. Companies can analyze the cost sheet to ensure that their products are priced appropriately to cover all costs and generate a desired profit margin. Secondly, a cost sheet can be used to identify cost-saving opportunities by analyzing the various cost components. By identifying areas of high costs, companies can take measures to reduce or eliminate them, leading to improved profitability. Finally, a cost sheet can aid in evaluating the profitability of different products or services by comparing their costs and revenues. This information can guide companies in making decisions regarding product mix, discontinuing unprofitable products, or focusing on high-margin offerings.
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