Preparation of Cost Sheet

Last updated on December 2nd, 2019 at 11:12 am

A cost sheet shows every expense involved in creating a product. Companies and contractors prepare cost sheets to show clients how much money it costs to provide services, perform repairs or assemble products. Job costs typically involve labor, materials and overhead. Cost sheets show material purchased, labor hours and figures used for arriving at a fair overhead cost. An accountant tracks all costs in these three divisions and notates it on a job cost sheet.

1. Notate material costs on a ledger that shows every expenditure on materials or supplies used for a particular job. Transfer all material costs listed on the ledger to a cost sheet when the project is finished.
2. Keep a log of all labor hours used to perform a job. Make a note of pay rates and hours for each employee who works on the project. Transfer project labor hours to the job cost sheet after the work is done.
3. Calculate the overhead cost for a job after all work is completed. Find the overhead cost figure by multiplying the overhead for a given number of employee hours, or by multiplying the number of days spent on the project by the daily overhead cost for a manufacturing facility.
4. List the individual costs for labor and time spent on the project. Note total costs for all separate materials. List the overhead as indirect labor and material costs. Show the total costs for labor, materials and overhead in a separate column. Add these three totals for an overall bottom line total cost. Prepare cost sheets showing these expenditures for all department heads and clients.

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.