Cost Sheet

› One of the objectives of cost accounting system is ascertainment of cost for a cost
object.
› Ascertainment of cost includes elementwise collection of costs, accumulation of the
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costs so collected for a certain volume or period and then arrange all these accumulated
costs into a sheet to calculate total cost for the cost object.
› A Cost Sheet or Cost Statement is “a document which provides a detailed cost
information.
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› In a typical cost sheet, cost information are presented on the basis of functional
classification. However, other classification may also be adopted as per the requirements
of users of the information
 Functional Classification of Elements of Cost
› Direct Material Cost
› Direct Employee (labour) Cost
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› Direct Expenses
› Production/ Manufacturing Overheads
› Administration Overheads
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› Distribution Overheads
› Research and Development costs etc.
 Cost Heads in a Cost Sheet
The costs as classified on the basis of functions are grouped into the following cost heads
in a cost sheet:
› Prime Cost
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› Cost of Production
› Cost of Goods Sold
› Cost of Sales
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 Prime Cost
› Prime cost represents the total of direct materials costs, direct employee (labour) costs
and direct expenses.
› The total of cost for each element has to be calculated separately.
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Direct Material Cost xxx

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Direct Employee/ Labour Cost
xxx
Direct Expenses xxx
Prime Cost xxx
 Direct Material Cost
› It is the cost of direct material consumed. The cost of direct material consumed is
calculated as follows:
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Opening Stock of Material xxx

Add: Purchases/ Additions xxx
Less: Closing Stock of Material xxx

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Direct Materials Consumed xxx

› Additions:
– Cost of material;
– Freight inwards;
– Insurance and other expenditure directly attributable to procurement;
– Trade discounts or rebates (to be deducted);
– Duties & Taxes (if input tax credit is not available/ availed) etc.
– Realised Value of material scrapped (to be deducted)
 Direct Employee Cost
› It is the total of payment made to the employees who are engaged in the production of
goods and provision of services. Employee cost is also known as labour cost; it includes
the following:
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– Wages and salary;

– Allowances and incentives;
– Payment for overtimes;
– Bonus/ ex-gratia;
–
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Employer’s contribution to welfare funds such as Provident fund and other similar funds;
Other benefits (medical, leave with pay, free or subsidised food, leave travel concession and
provisions for retirement benefits) etc.
 Direct Expenses
› Expenses which are incurred to manufacture a product or for provision of service and can
be directly traced in an economically feasible manner to a cost object. The following
costs are examples for direct expenses:
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– Cost of utilities such as power & fuel, steam etc.;

– Royalty paid/ payable for production or provision of service;
– Hire charges paid for hiring specific equipment;
– Fee for technical assistance and know-how;
–
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Amortised cost of moulds, patterns, patents etc.;
Cost for product/ service specific design or drawing;
– Cost of product/ service specific software;
– Other expenses which are directly related with the production of goods or provision of service.
 Cost of Production
› In a conventional cost sheet, this item of cost can be seen. It is the total of prime cost
and factory related costs and overheads.
Prime Cost xxx
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Add: Factory Overheads xxx

Gross Work Cost xxx
Add: Opening stock of Work-in-process xxx
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Less: Closing stock of Work-in-process
Factory / Works Cost xxx
Add: Quality Control Cost xxx
Add: Research and Development Cost (Process Related) xxx
Add: Administrative Overheads related with Production xxx
Less: Credit for recoveries (Miscellaneous Income) (xxx)
Add: Packing Cost (Primary Packing) xxx
Cost of Production xxx
 Factory Overheads
› It is also known as works/ production/ manufacturing overheads
› It includes following:
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– Consumable stores and spares;

– Depreciation of plant and machinery, factory building etc.
– Lease rent of production assets;
– Repair and maintenance of plant and machinery, factory building etc.
Indirect employees cost related with production activities;
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–
– Drawing and Designing department cost;
– Insurance of plant and machinery, factory building, stock of raw material & WIP etc.
– Amortized cost of jigs, fixtures, tooling etc.
– Service department cost such as Tool Room, Engineering & Maintenance, Pollution Control etc.
 Stock of WIP
› The cost of opening and closing stock of work-in-process (WIP) is adjusted to arrive at
factory/ works cost.
› The WIP stock is valued on the basis of percentage of completion in respect of each
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element of cost.
› Refer the ‘Chapter- Process & Operation Costing’ to know the WIP valuation methods.

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 Other items of COP
› Quality Control Cost: This is the cost of resources consumed towards quality control
procedures.
› Research & Development cost: It includes only those research and development related
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cost which is incurred for the improvement of process, system, product or services.
› Administrative Overheads (Production): It includes only those administration overheads
which are related to production. The general administration overhead is not included in
production cost.
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› Credit for recoveries: The realised or realisable value of scrap or waste is deducted as it
reduces the cost of production.
› Joint products and By-products: Joint costs are allocated between/among the products
on a rational and consistent basis. In case of byproducts, the net realisable value of by-
products is deducted from the cost of production.
› Packing Cost (primary): Packing material which is essential to hold and preserve the
product for its use by the customer.
 Cost of Goods Sold
› It is the cost of production for goods sold. It is calculated after adjusting the values of
opening and closing stocks of finished goods. It can be calculated as below:
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Cost of Production xxx

Add: Cost of Opening Stock of Finished Goods xxx

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Less: Cost of Closing Stock of Finished Goods (xxx)
Cost of Goods Sold xxx
 Cost of Sales
› It is the total cost of a product incurred to make the product available to the customer or
consumer. It includes Cost of goods sold, administration and marketing expenses. It is
calculated as below:
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Cost of Goods Sold xxx

Add: Administrative Overheads (General) xxx

CA.
Add: Selling Overheads
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Add: Packing Cost (Secondary)
POPAT xxx
xxx
Add: Distribution Overheads xxx
Add: Interest and Finance Charges xxx
Cost of Sales xxx
 Administrative Overheads
› It is the cost related with general administration of the entity. It includes the followings:
– Depreciation and maintenance of, building, furniture etc. of corporate or general management.
– Salary of administrative employees, accountants, directors, secretaries etc.
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– Rent, rates & taxes, insurance, lighting, office expenses etc.

– Indirect materials- printing and stationery, office supplies etc.
– Legal charges, audit fees, corporate office expenses like directors’ sitting fees, remuneration and
commission, meeting expenses etc.

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 Selling Overheads
› It is the cost related with sale of products or services. It includes the following costs:
– Salary and wages related with directly related with selling of goods.
– Rent, depreciation, maintenance and other cost related with sales department.
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– Cost of advertisement, maintenance of website for online sales, market research etc.

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 Packing Cost - Secondary
› Packing cost (secondary): Packing material that enables to store, transport, inform the
customer, promote and otherwise make the product marketable.
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 Distribution Overheads
› It includes the cost related with making the goods available to the customers. The costs
are
– Salary and wages of employees engaged in distribution of goods.
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– Transportation and insurance costs related with distribution.

– Depreciation, hire charges, maintenance and other operating costs related with distribution
vehicles etc.

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 Ref Particulars Total Cost

Cost Sheet - Format

1. Direct Materials Consumed:
Opening Stock of Raw Material xxx
Add: Additions/ Purchases xxx
Less: Closing Stock of Raw Material (xxx)
xxx
2. Direct Employee (Labour) Cost xxx
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3. Direct Expenses xxx

4. Prime Cost (1+2+3) xxx
5. Add: Works/ Factory Overheads xxx
6. Gross Works Cost (4+5) xxx
7. Add: Opening Work-in-Process xxx

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8. Less: Closing Work-in-Process (xxx)
9. Works/ Factory Cost (6+7-8) xxx
10. Add: Quality Control Cost xxx
11. Add: Research and Development Cost (Process Related) xxx
12. Add: Administrative Overheads related with Production xxx
13. Less: Credit for recoveries/ scrap/ by-product (Miscellaneous Income) (xxx)
14. Add: Packing Cost (Primary Packing) xxx
15. Cost of Production (9+10+11+12-13+14) xxx
16. Add: Cost of Opening Stock of Finished Goods xxx
17. Less: Cost of Closing Stock of Finished Goods (xxx)
18. Cost of Goods Sold (15+16-17) xxx
19. Add: Administrative Overheads (General) xxx
20. Add: Selling Overheads xxx
21. Add: Packing Cost (Secondary) xxx
22. Add: Distribution Overheads xxx
23. Add: Interest and Finance Charges xxx
24. Cost of Sales (18+19+20+21+22+23) xxx
 Ref Particulars Total Cost
1. Direct Materials Consumed:
Opening Stock of Raw Material xxx
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Add: Additions/ Purchases xxx

Less: Closing Stock of Raw Material (xxx)
xxx
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Direct Employee (Labour) Cost xxx
3. Direct Expenses xxx
4. Prime Cost (1+2+3) xxx
5. Add: Works/ Factory Overheads xxx
6. Gross Works Cost (4+5) xxx
7. Add: Opening Work-in-Process xxx
8. Less: Closing Work-in-Process (xxx)
9. Works/ Factory Cost (6+7-8) xxx
 10. Add: Quality Control Cost xxx
11. Add: Research and Development Cost (Process Related) xxx
12. Add: Administrative Overheads related with Production xxx
13. Less: Credit for recoveries/ scrap/ by-product (Miscellaneous Income) (xxx)
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14. Add: Packing Cost (Primary Packing) xxx

15. Cost of Production (9+10+11+12-13+14) xxx
16. Add: Cost of Opening Stock of Finished Goods xxx
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Less: Cost of Closing Stock of Finished Goods (xxx)
18. Cost of Goods Sold (15+16-17) xxx
19. Add: Administrative Overheads (General) xxx
20. Add: Selling Overheads xxx
21. Add: Packing Cost (Secondary) xxx
22. Add: Distribution Overheads xxx
23. Add: Interest and Finance Charges xxx
24. Cost of Sales (18+19+20+21+22+23) xxx
 Treatment of other items
› Abnormal costs - Any abnormal cost, where it is material and quantifiable, shall not form
part of cost of production or acquisition or supply of goods or provision of service.
Examples of abnormal costs are
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– Cost pertaining to or arising out of a pandemic e.g. COVID-19

– Cost associated with employees due to sudden lockdown.

› Subsidy/ Grant/ Incentives - Any such type of payment received/ receivable are
reduced from the cost objects to which such amount pertains.

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› Penalty, fine, damages, and demurrage - These types of expenses are not form part of
cost.
› Interest and other finance costs - Interest, including any payment in the nature of interest
for use of non- equity funds and incidental cost that an entity incurs in arranging those
funds. Interest and finance charges are not included in cost of production.
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