Cost Sheet: Definition, Format & Examples

Cost Sheet: Definition, Format & Examples.

What is a Cost Sheet

A Cost Sheet is a statement / report which provides a detailed overview of the cost incurred on various components during the process of production. The cost sheet is a periodical statement that may be prepared monthly, quarterly, yearly etc.

A cost sheel lists the following elements:

• Prime Cost: This includes all the direct material costs (raw material costs) and direct labour costs
• Works Cost (Factory Cost): Add to Prime Cost all the Factory Overheads, including indirect material and indirect labour costs.
• Cost of Production: Add Office or Administrative Overheads to Works Cost
• Total Cost: Add Selling and Distribution Costs to Cost of Production and this will give the Total Cost / cost of Goods Sold (COGs)

How does it help?

Here’s why a cost sheet is prepared:

• A cost sheet reveals the margin earned on a product or job, and could form the basis for pricing similar products in future.
• It can also form the basis for a variety of cost control measures.
• It helps in classification and analysis of the various cost components associated with a product or service.
• It also helps the company to formulate a suitable production policy.

Classification of Cost Elements

The following categories of costs are usually listed on the report:

• Direct Material Cost
• Direct Wages
• Direct Expenses
• Production Overheads
• Research and Development Cost
• Administration Overheads
• Selling and Distribution Overheads

The various cost elements are usually classified on functional basis. But it could be classified on other factors as well, depending on the requirements of the firm.

Method of Preparation 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.

Cost Sheet Examples

Cost Sheet of MRF Automobile Tyres for the year 2018

Prime Cost: The direct material and labour costs.

• Opening Stock of Raw Materials
• Raw Materials purchased during the year (most of the expenditure happens on buying raw materials which s used for making tyres).
• Raw Materials in Transit
• Less: Closing Stock of Raw Materials
• Productive Wages
• Less: Material destroyed

This will give the Total Prime Cost.

Works Cost (Factory Cost): The indirect material and indirect labour costs.

Add: Factory Overheads

• Indirect Material:
• Indirect Labour (Wages)
• Power and Fuel
• Factory Lighting and Supervision

Factory Insurance

• Depreciation – Plant and equipment (Major expense here is the depreciation of the plant and the equipment/machinery)
• Miscellaneous

Total Factory Expenses

Add: Opening Stock of Work-in Progress (Cost)
Less: Closing Stock of Work-in Progress (Cost)

Total Works Cost

Cost of Production: This includes office and administrative costs.

Add: Office or Administrative Overheads

• Office Salaries (Major expense is the salaries of the office staff)
• Management Expenses / Travel
• Office Insurance
• Bank charges
• Other Office Expenses

Total Cost of Production

Add: Opening Finished Goods (Cost)
Less: Closing Finished Goods (Cost)

Cost of Production of Goods Sold

Total Cost: This includes all the selling and distribution costs related to selling of the finished goods.

Add: Selling and Distribution Costs

• Warehouse & Showroom Rent
• Salesmen Salaries & Commissions
• Advertisements
• Freight and Forwarding
• Insurance
• Depreciation Furniture and fixtures & Computers)
• Product warranty claims
• Miscellaneous

Total Cost / Cost of Goods Sold (COGS)
Profit / Loss (difference of Sales and COGS)