COST SHEET
Samir K Mahajan
COMPONENTS OF TOTAL COST
Prime cost or Direct cost : It is the aggregate of direct material cost, direct labour cost
and direct expenses.
i.e. Prime cost or Direct cost = Direct materials + Direct labour + Direct expenses
(Direct materials = Purchases + Opening stock of Raw materials – closing stock of Raw materials )
Factory cost or “works cost” or “manufacturing cost”: It is the aggregate of prime cost
and factory overheads.
i.e. Works cost or Factory cost or Manufacturing cost = Prime cost +
factory overheads
COMPONENTS OF TOTAL COST contd.
Office cost or cost of production or administrative cost : It is the aggregate of factory
cost and office and administration overheads.
i.e. Office cost or cost of production = Factory cost + Administration overhead
 Cost of production of goods sold /cost of production of sales = Cost of goods available for sale − Closing
stock of finished Goods
= (Office cost + Opening stock of finished goods) − Closing stock of finished goods
COMPONENTS OF TOTAL COST
Total cost or Cost of sales : It is the aggregate of office cost and selling and distribution
overheads. This is also called cost of sales
Cost of sales or Total cost = cost of production of sales + Selling and Distribution
overheads
 Profit Or Loss : The difference between the cost of sales and selling price represents
profit or loss.
COMPONENTS OF TOTAL COST contd.
In the determination of different components of cost, certain adjustments have to be carried out for
inventories of raw materials, work-in-progress and finished goods as follows:
 Consumption of raw material (or) material used: It has to be adjusted with inventories of raw
materials
Raw materials used = Opening stock + Purchases − Closing stock
=Opening stocks of Direct material + Purchase of direct material − Closing stock of direct
material
COMPONENTS OF TOTAL COST contd.
 Work in Progress: It has to be adjusted with works cost (i.e., after computation of prime cost
but before determining works cost)
Gross Work cost = Works cost + Opening work-in-progress − Closing work-in-progress
 Stock of finished goods: It has to be adjusted with cost of production (i.e., after computation of
works cost but before determining cost of production) and Cost of production of goods
sold/sales.
CONVERSION COSTS
Conversion costs are those costs required to convert raw materials into finished goods that
are ready for sale. The concept is used in cost accounting to derive the value of ending
inventory, which is then reported in the financial statements. It can also be used to determine
the incremental cost of creating a product, which could be useful for price setting purposes.
Conversion costs are all manufacturing costs except for the cost of raw materials.
Conversion costs = Direct labour + Manufacturing overhead
= (Prime cost – direct materials – direct expenses ) + Manufacturing overhead
Examples of costs that may be considered as conversion costs are direct labour and related
benefits equipment depreciation, equipment maintenance, factory rent, factory supplies,
factory insurance, machining Inspection, production utilities, production supervision, Small
tools charged to expense.
CONVERSION COSTS contd.
Illustration: ABC International incurs a total of $50,000 during March in direct labour and
related costs, as well as $86,000 in factory overhead costs. ABC produced 20,000 units during
March. Therefore, the conversion cost per unit for the month was $6.80 per unit (calculated
as $136,000 of total conversion costs divided by the 20,000 units produced).
Illustration 1. Find the Prime Cost, Works Cost, Cost of production, total Cost and profit from the
following:- Direct Materials Rs.20000; Direct Labour Rs. 10000; Factory Expenses Rs. 7000;
Administration Expenses Rs. 5000; Selling Expenses Rs. 7000 and Sales Rs.60,000.
Solution:
Prime Cost = Direct Materials + Direct Labour = Rs.20,000 + Rs.10,000 = Rs.30,000.
Works Cost = Prime Cost + Factory overheads = Rs.30,000 + Rs.7,000 = Rs.37,000.
Cost of Production = Works Cost + Administration Expenses=Rs.37000+ Rs.5, 000 = Rs.42, 000.
Total Cost or Cost of sales= Cost of Production + Selling Expenses = Rs.42, 000+ Rs.7, 000 = Rs.49,
000.
Profit = Sales - Total Cost = Rs.60,000 - Rs.49,000=Rs.11, 000.
Illustration 1. Find the Prime Cost, Works Cost, Cost of production, total Cost and profit from the
following:- Direct Materials Rs.20000; Direct Labour Rs. 10000; Factory Expenses Rs. 7000;
Administration Expenses Rs. 5000; Selling Expenses Rs. 7000 and Sales Rs.60,000.
Cost Sheet: Analysis of Components of Cost
Cost sheet or Statement of Cost: When costing information is set out in the form of a statement, it
is called “Cost Sheet”. It is usually adopted when there is only one main product and all
costs almost are incurred for that product only. The information incorporated in a cost sheet
would depend upon the requirement of management for the purpose of control.
An analysis of the total cost of production and cost of sales is carried out by preparing “Cost sheet”.
A Cost sheet is an important document prepared by the costing department. Cost sheet is prepared
to analyse the components of total cost, thereby determining (i) prime cost, (ii) works cost, (iii) cost
of production, (iv) cost of sales and (v) profit.
FORMAT OR SPECIMEN OF A COST
Cost Sheet or Statement of Profit and Cost
Direct Material
Direct Labour
Direct Expenses
XXX
XXX
XXX
PRIME COST
XXX
XXX
Add: Factory overhead
WORKS COST (or) FACTORY COST
Add: Administration overhead
XXX
XXX
XXX
COST OF PRODUCTION
Add: Selling and distribution overhead
TOTAL COST (or) COST OF SALES
XXX
XXX
PROFIT
XXX
SALES
XXX
Ex 1: Calculate (i) prime cost, (ii) works cost, (iii) cost of production and (iv) cost of sales, from the following
particulars:
Raw materials consumed
30,000
Wages paid to labourers
12,000
Chargeable expenses—Direct 1,000
Wages of foreman
2.000
Wages of store keeper
1,000
Electricity : Factory
2,500
Office
Rent : Factory
Office
Depreciation: Plant and
machinery
Office furniture
500
1,500
500
600
200
Consumable stores
1,000
Manager’s salary
3,000
Office printing and stationery 500
Solution:
Example 2: From the following particulars, calculate: Cost of raw-materials consumed, prime cost,
Works/manufacturing cost, cost of production , cost of production of goods sold, total cost and Profit
Opening stock
Raw materials
10,000
Office management salaries
5,000
Finished goods
5,000
Office printing and stationery
300
Raw material purchased
60,000
Salesmen salary
3,000
Wages paid to labourers
25,000
Travelling expenses
1,200
Directly chargeable
expenses
3,000
SALES
1,75,000
Rent, rates and taxes
4,000
Power
2,500
Factory heating and
lighting
2,000
Factory insurance
1,000
Sale of wastage of
materials
500
Closing stock
Raw materials
7,000
Finished Goods
10,000
Solution: Example 2
Particulars
Step 1: Direct material : Cost of Raw material Consumed
(i)Opening Stock
10000
(ii) Add: Purchase
60000
70000
iii)Less: Closing stock
7000
(iv) Less: Sale of wastage materials
Step2: Direct labour
Step 3: Direct Expenses –chargeable
Step 4: Prime Cost (step 1+ step 2+ step 3)
Amount (Rs)
63000
500
Amount (Rs)
62500
25000
3000
90500
Solution: Example 2
Particulars
Amount (Rs)
Amount (Rs)
Step 5: Add Production overheads (factory)
(i) Rent, rate and taxes
(ii) Power
(iii) Factory heating and lighting
(iv) factory insurance
Step 6: Factory cost (step 4 + step5)
4000
2500
2000
1000
95000
Step 7: Add Administrative overheads
(i) Office management salary
(ii) Office printing and stationary
Step 8: Total cost of production (step 6+ step 7)
5000
300
100000
5300
105300
Step 9: Add: Opening stock of finished goods
105300
5000
110300
Step 10: Less closing stock of finished goods
Sept 11: Cost of production of goods sold
10000
100300
Step 12: Add: Selling and Distribution overheads
(i) Salaries of salesmen
(ii) Travelling expenses
Step 13: Cost of sales /total cost (Step 11+ step 12)
Sept14: Profit (step 15- step 14)
Step 15: Sales
3000
1200
42000
104500
70500
175000
Solution: