CMA/U3 Topic 2 Preparation of Cost Sheet and Statement of Cost
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:
(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 above method can better be presented with the help of the following proforma Cost Sheet: