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Preparation of Cost Sheet

Cost Sheet is a statement which presents detailed information relating to the various stages of cost. It also shows the total cost of the product manufactured during a particular period of time. Thus, the cost sheet is prepared for a particular period of time monthly, quarterly, yearly etc.

Objects of Preparing a Cost Sheet:

A cost sheet is prepared for:

(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.

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.

The following extract of costing information related to commodity X for the half year ended 30th June, 2011:

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Advertising, discount allowed and selling cost 75 paise per ton sold. 25,600 tonnes of commodity was produced during the period.

You are required to ascertain:

(a) The value of raw materials used

(b) Cost of output for the period

(c) Cost of turnover for the period

(d) Net profit for the period

(e) Net profit per tonne of the commodity sold.

Solution:

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