Assignment on cost sheet

What is meant by cost sheet?Explain the importance of cost sheet.

Ans-A cost sheet is a report on which is accumulated all of the costs associated with a product or
production job. A cost sheet is used to compile the margin earned on a product or job, and can form
the basis for the setting of prices on similar products in the future.

Importance of cost sheet:

1. Determining Selling Price

Cost sheet helps in fixing the selling price of a product or service. It is essential to prepare a cost
sheet for determining the individual costs which lead to determining the cost of the product or
service.

2. Facilitates the Managerial Decisions

Fixing of selling price is aided by the cost sheet and so cost sheet help managers in making
management decisions such as whether to produce or buy a component, what prices of goods can
be quoted in the tender, whether to retain or replace an existing machine, how to reduce costs, etc.

3. Disclosure of Profitable and Unprofitable Activities

Since cost accounting calculates individually the cost, selling price, and profitability of the product,
the separation of profitable and unprofitable activities or items becomes easy. So if the cost of any
product is exceeding than the revenue, then it helps the decision-making to identify and make
decisions whether they need to continue with the product or not.

4. Find Out Exact Cause of Change in Profit

Cost sheet keeps a track of all your cost. As a result, you are able to identify the cause behind a
change in profit. If the wages of labor is increased, then your profits will decrease.

5. Preparation of Budget

Companies can prepare a budget with the help of cost sheet. You can prepare the budget by using
the current or previous year’s data. Based on your existing cost sheet, you can make estimates of
your cost for the next financial year.

Define various components of total cost sheet.

Prime cost:

It is the aggregate of direct material cost, direct wages, and direct expenses.

Factory cost:
It includes prime cost plus all factories or works overheads. It is also known as works cost,
production cost or manufacturing cost.

Cost of Production or Production Cost:

It is arrived at after adding office and administration overheads to factory cost.

Cost of sales or total cost:

It is arrived at after adding selling and distribution overheads to cost of production.

NUMERICAL

1.From the following information prepare a cost sheet for period ended on
31st March 2010.

Solution:

Particular Amount(in Rs) Amount(inRs)

Opening stock 12500
(+)Purchase of raw material
(-)Closing stock
136000
8500
Cost consumed 140000
Direct wages 54000
Direct Expensive 12000
Prime cost 206000
Factory Overhead 54000
Work cost
Office and administration 52000
overhead
Cost of production 312000
(+)Opening stock of finish 12000
goods Good are for sales 324000
(-)Closing stock of finish goods
15000
Cost of goods sold 309000
Selling and distribution 26600
overhead 335000
Cost of sales 67000
Profit Sales 402000

2.The following information is given to you from which you are requiredto
prepare cost sheet for the period ended on 31st march 2009

Solution:

Particulars Amount(in Rs) Total cost Cost per unit

Opening stock 20000
(+)Purchase 122000
(-)Closing stock
10000 132000 11.00
Cost of raw material
consumed
Direct wages 36000 3.00
Direct expenses 24000 2.00
Prime cost 192000 16.00
Factory 18000 1.50
Overhead(50% of
dirct wages i.e Work factory
12000*1.50)
overheads 210000 17.50
Office overheads(20% 42000 3.50
of works cost)
Total cost of 252000
production
(+)Opening stock of 12500
finished goods
Cost of goods 264500
available foe sales
(12000+500)
31500
(-)Closing stock of
finished goods Cost of goods 233000 21.18
sold(12500-
1500=11000units)
(+)Selling and 330001 3.00
distribution 266000 24.18
overheads
Cost of sales
(+)Profit 66500 6.04
Sales(266000*25/100) 332500 30.22