CONTENTS

1. ABSTRACT
2. INTRODUCTION
3. OBJECTIVES OF COSTSHEET
4. METHODOLOGY OF COST SHEET
5. ADVANTAGES OF COST SHEET
6. STATEMENT OF COST SHEET
7. PROBLEM
8. SOLUTION
9. CONCLUSION

10. BIBLIOLOGY

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Abstract
Effective management information systems are a basic need of every administrator of a
medical group practice. This general discussion of the subject of cost accounting enables the
administrator to develop a standard cost system and its related detail cost sheets as a
management information tool. Detail cost sheets can be useful in reviewing utilization of
group resources, establishing a basis for fees, setting a uniform margin of expected profit, and
as a guide in negotiation of contracts with third-party payers.

Introduction
Cost Sheet or statement of cost shows the total cost as well as cost per unit for a given
period. Total cost is calculated in a logical order and under proper divisions of cost. It shows
prime cost, works cost, cost of production, cost of goods sold and total cost. It is prepared for
a specific period as a week, a month, a quarter or a year.

Thus it is a statement designed to show the output of a particular accounting period along
with break-up of costs. The data incorporated in cost sheet are collected from various
statements of accounts which have been written in cost accounts.

There is no fixed form for preparation of cost sheet. But in order to make the cost sheet more
useful, it is generally presented in columnar form. The columns are for the total cost of the
current period, per unit for the current period, total cost and per unit cost for a preceding
period and total and per unit cost for budget period and so on. The information to be
incorporated in cost sheet would depend upon the requirement of the management for the
purpose of control.

Cost sheet is a memorandum statement. Therefore, it does not form part of double entry cost
accounting records. Inspite of this the relationship between cost sheet and financial accounts
which are maintained on double entry system is very important as cost sheet derives its data
from financial accounting. In case predetermined rates are not used, the entire data required
for preparation of cost sheet is derived from financial accounting. Therefore, periodically it
becomes necessary to reconcile the information obtained from cost accounting and financial
accounting separately. Cost sheet when presented in ‘T’ form is known as Production
Account.

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 Objectives of the project

(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.

Methods of cost sheet

Step I = Prime Cost = Direct Material + Direct Labour + Direct Expenses.

Step II = Works Cost = Prime Cost + Factory/Indirect Expenses.

Step III = Cost of Production = Works Cost + Office and Administration Expenses.

Step IV = Total Cost = Cost of Production + Selling and Distribution Expenses. Profit = Sales

– Total Cost.

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Purposes (or Advantages) of Cost Sheet
The main purposes or advantages of cost sheet are :

1. It discloses the total cost and the cost per unit of the units produced during the given
period.

2. It enables a manufacturer to keep a close watch and control over the cost of
production.

3. By providing a comparative study of the various elements of current cost with the past
results and standard costs, it is possible to find out causes of variations in costs and to
eliminate the adverse factors and conditions which go to increase the total cost.

4. It acts as a guide to the manufacturer and helps him in formulating a definite useful
production policy.

5. It helps in fixing up the selling price more accurately.

6. It helps the businessman to minimise the cost of production when there is a cut throat
competition.

7. It helps the businessman to submit quotations with reasonable degree of accuracy

against tenders for the supply of goods.

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Proforma of a Cost Sheet
Following is the proforma of preparing cost sheet or statement of cost :

COST SHEET OR STATEMENT OF COST

Total Cost Cost per unit

` `
Direct Material
Direct Labour
Direct Expenses
Prime Cost
Add: Work Overheads
Manufacturing or Works Cost
Add: Administration Overheads
Cost of Production
Add: Selling and Distribution Overheads
Total Cost or Cost of Sales
Note: If Profit is also calculated along with cost, then cost sheet is known as Statement of Cost and
Profit.

 Stock of Work-in-Progress

Work-in-progress means units on which some work has been done but which are not
yet complete. Work-in-Progress is valued at prime cost or works cost basis, but the latter
valuation is preferred. Instructions in this respect should be carefully noted from the language
of the question.

(i) If the work-in-progress is valued at prime cost basis, then it is adjusted before
calculating prime cost as shown below.
`
Direct Material Consumed xxx
Direct Wages xxx
xxx
Add: Opening Work-in-progress xxx
xxx
Less : Closing Work-in-progress xxx
Prime Cost xxx

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 (ii) If work-in-progress is valued at works or factory cost, then opening and closing
stock will be adjusted as follows:
`
Prime Cost xxx
Add: Factory Overheads xxx
Factory Cost Incurred xxx
Add: Work-in-Progress (Beginning) xxx
xxx
Less: Work-in-Progress (Closing) xxx
Factory or Manufacturing or Works Cost xxx

 Stocks of Finished Goods

If opening and closing stock of finished goods are also given, then these must be
adjusted before calculating of goods as under:

`
Cost of Production of Goods Produced xxx
Add: Opening Stock of Finished Goods xxx
Cost of production of Goods available for sale xxx
Less: Cost of Closing Stock of Finished Goods xxx
Cost of Production of Goods Sold xxx

Some times along with statement of cost , profit is also calculated, Then it is called a
statement of cost and profit.

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 PROBLEM.

Calculate Prime Cost, Factory Cost, Cost of Production, Cost of Sales and Profit from the
following particulars:

` `
Direct materials 1,00,000 Depreciation:
Direct wages 30,000 Factory Plant 500
Wages of foreman 2,500 Office Premises 1,250
Electric Power 500 Consumable salary 2,500
Lighting : Factory 1,500 Manager’s salary 5,000
Office 500 Director’s fees 1,250
Storekeeper’s wages 1,000 Office stationary 500
Oil and water 500 Telephone charges 125
Rent : Factory 5,000 Postage and Telegrams 250
Office 2,500 Salesman’s salaries 1,250
Repairs and Renewals Travelling expenses 500
Factory Plant 3,500 Advertising 1,250
Office Premises 500 Warehousing charges 500
Carriage outward 375 Sales 1,89,500

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SOLUTION

STATEMENT OF COST AND PROFIT

`
Direct materials 1,00,000
Direct wages 30,000
Prime Cost 1,30,000
Add: Factory Overheads `
Wages of foreman 2,500
Electric power 500
Storekeeper’s wages 1,000
Oil and water 500
Factory Rent 5,000
Repairs and Renewals – Factory Plant 3,500
Factory lighting 1,500
Depreciation – Factory Plant 500
Consumable stores 2,500
17,500
Factory Cost 1,47,500
Add: Administration Overheads
Office Rent 2,500
Repairs and renewals – office premises 500
Office lighting 500
Depreciation : Office premises 1,250
Manager’s Salary 5,000
Director’s fees 1,250
Office stationary 500
Telephone charges 125
Postage and telegrams 250
11,875
Cost production 1,59,375
Add: Selling and Distribution Overheads
Carriages outward 375
Salesman’s salaries 1,250
Travelling expenses 500
Advertising 1,250
Warehousing charges 500
3,875
Cost of Sales 1,63,250
Profit 26,250
Sales 1,89,500

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CONCLUSION
Therefore, I conclude here that cost sheet helps in fixing up the selling price more
accurately and helps the businessman to minimize the cost of production when there is a
cut throat competition. A cost sheet analyzes the components of cost in order to show the
per unit cost for a given product.

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Bibliography

 Kalyani Publication
 S.P.Jain
 K.L.Narang
 Simmi Agrawal
 Monika Sehgal
 www.kalyanipublishers.co.in
 www.google.com

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