Issues for discussion

Cost Sheet
Cost sheet Vs Income Statement
Notes day 2:

chap 5 in book:
cost determination depends on your assumptions so can be different
total cost= DM+DL+DE+OVERHEADS
overheads=IM+IL+IE (WHAT is indirect? No definite way-depends)
tc=dm+dl+de+manufacturing overhead (mo)+nmo(non manufacturing overhead)
total cost=prime cost+mo=nmo
prime cost will remain throughout
total cost= product cost+nmo
the focus of cost is not company but the product
nmo consist of : EXAMPLES MARKETING, SALES AND DISTRUBTION
total cost=productcost+ao(admin overhead)+sdo(sales and distrubtion overhead)
why costing? - statutory reporting, which is financial accounting (ind s 2- rule book for accounting- it is for reporting to the sha
valued at market cost or inventory cost which ever is lower
managerial decision: pricing(process of cost recovery)
for better priing yu need to details on cost
cost depends on the purpose of recovering

output for costing classes:

no statand templete
assumption: cost sheet will capture the cost flow
cost flows from: fac->admin->>sales and distrubtion->>customer
can have reverse logistics but fornow not included
((((chrt in notes))))

Cost sheet
costcomputation
without inventory
with inventory

inventory
RM (raw material)
WIP - where degree ofcompleteion <100 %- no standard rile-depends on your completion and bussiness
Finished goods: where the degreeof completion is 100% with respect to all cost

RM
OPENING STOCJ:1000 UNITS @ 5
Purchase : 5000 units @ 8
closing stock : 3000

it will affect the product cost- as different ways of consumption

cost of material consumed=open +purch-closing
Finished goods
opening stock : 1000kg @50
purchase : 3000 kgs @85
g- it is for reporting to the shareholder, must for shareholder not for managemnet- inventory should be
 Some relevant financial information (April) Cost sheet
Raw material purchased and used ( 1000 kgs) 250,000 DM 250,000
Plant Purchased ( life =10) 780,000 DL 185,000
Direct Wages 185,000 DE 50,000
Direct expenses 50,000 Prime cost 485,000 243
Rent for factory building 250,000 Manfacturing overheads
Rent for show room 25,000 Rent for factory building 250,000
Salary of admin staff 50,000 Salary of factory manager 200,000
Salary of factory manager 200,000 Electricity 18,000
Salesmen salary 60,000 Plant insurance 5,000
Electricity 90,000 Dep on plant 6,500 slm
Factory 20% 479,500 240
Admin 50% Product cost 964,500 482
Sales office 30%
Depreciation on office building 25,000 prime cost+manfaurting overheads= product cost
depreciation on sales van 12,000 964,500
Depreciation on vehile used by the admin staff 20,000
Plant insurance 5,000 Non manu overheads
Advance paid to the suppliers 150,000 Admin OH
Interest on loan (Taken for purchase of building) 10,000 Salary of admin staff 50,000
Income tax of the previous year paid 85,000 Depreciation on office build 25,000
Dividend received 5,800 Depreciation on vehile used 20,000
dividend paid 260,000 Electricity 45,000
Units Produced 2,000 140,000 70

Examine Cost Selling & Distrubtion cost

Find cost per unit Salesmen salary 60,000
find price, if the company wants to earn profit of 20% Electricity 27,000
depreciation on sales van 12,000
Rent for show room 25,000
124,000

Total Cost 1,228,500 614

price with 737
pricing is you call may or maybe be 737
 Some relevant financial information (April)
Raw material purchased and used ( 1000 kgs) 250,000
Plant Purchased ( life =10) 780,000
Direct Wages 185,000
Direct expenses 50,000
Rent for factory building 250,000
Rent for show room 350,000
Salary of admin staff 250,000
Salary of factory manager 200,000
Salesmen salary 250,000
Electricity 90,000
Factory 10%
Admin 70%
Sales office 20%
Depreciation on office building 85,000
depreciation on sales van 150,000
Depreciation on vehile used by the admin staff 250,000
Plant insurance 5,000
Advance paid to the suppliers 150,000
Interest on loan (Taken for purchase of building) 10,000
Income tax of the previous year paid 85,000
Dividend received 5,800
dividend paid 260,000
Units Produced 2,000

Find Price if all stock sold

expected profit of 25%

Price (1) #REF!

Price (2) #REF!
 cost sheet
why we cannot sumup all expenses and divide by no of units?
Answer: this is okay if only product/one supplier/but that is not the case
some cost like income tax not include
39% not taken interest as we made a brorad assumption
Advance paid to the suppliers not included because it an asset as advance

TC= Prime cost+ MO+ NMO

485,000 479,500 264,000 1,228,500
39%
79% TC= Product cost+ AO+ SDO+
964,500 140,000 124,000 1,228,500
79% 11% 10%

11%

10%
 Cost sheet
Direct Material(1000 kgs) 250,000
Direct Labour 185,000
Direct Expense 50,000
Prime Cost 485,000 TC =
Manufacturing OH
Rent for factory building 250,000
Salary of factory manager 200,000 TC =
Plant insurance 5,000
Electricity 9,000
Depreciation (Plant) 6500 TC =
470,500
Product cost 955,500
Non manufacturing OH TC =
Admin overhead
Salary of admin staff 250,000
Electricity 63,000 TC =
Depreciation on office building 85,000
Depreciation on vehile used by the admin staff 250,000
 648,000
Sales and Distribuition overheads
Rent for show room 350,000
Salesmen salary 250,000 MAJOR IS AO AND SDO - reason to spe
Electricity 18,000
depreciation on sales van 150,000
768,000
Total Cost 2,371,500
 DM+ DL+ DE+ Overheads
250,000 185,000 50,000 1,886,500 2,371,500

DM+ DL+ DE+ MO+ NMO

250,000 185,000 50,000 470,500 1,416,000 2,371,500

DM+ DL+ DE+ MO+ AO SDO

250,000 185,000 50,000 470,500 648,000 768,000 2,371,500

Prime Cost+ Overheads

485,000 1,886,500 #REF!

Prime Cost+ MO+ AO+ SDO

485,000 470,500 648,000 768,000 2,371,500
20% 20% 27% 32%
 product cost AO SDO
40% 27% 32%
S AO AND SDO - reason to spend so much? Analysis
 Cost information (Quarter -1) CS
Raw material purchased and used Cost ofmaterial consumed
Opening stock (Kgs) @24 1,000 Opeing
Purchase (kgs)@25 8,000 Purchase
Closing stock (kgs) 2,000 less closing
Direct expenses (handling material) 25,000
Direct Wages 185,000 Cost of material consumped
Purchased Plant on credit 2,000
Exchange rate: $1 = Rs. 83
Depreciation method: SLM 25%
Rent for factory building not paid 450,000
Rent for admin building paid 300,000
Rent for show room not paid 180,000
Salary of admin staff 150,000
Salary of factory manager 200,000
Salesmen salary 60,000
Finished product
Opening stock (Units) 500
Production (units) 2,500
closing stock (units) 800

Find Price if all stock sold

expected profit of 25%

Price (1)
Price (2)
 Cost information_April
Raw material purchased and used 250,000
Plant Purchased ( life =10) 420,000
Direct Wages 185,000

Rent for factory building 50,000

Rent for admin building 250,000
Rent for show room 25,000
Salary of admin staff 220,000
Salary of factory manager 80,000
Salesmen salary 60,000
Units Produced 2,000

Dep 3,500

688,500 688,500
 Cost information_April
Raw material purchased and used 250,000
Plant Purchased ( life =10) 420,000
Direct Wages 185,000

Rent for factory building 50,000

Rent for admin building 50,000
Rent for show room 225,000
Salary of admin staff 20,000
Salary of factory manager 80,000
Salesmen salary 260,000
Units Produced 2,000

Dep 3,500
688,500 688,500
 24,000
200,000
-50,000
174,000
 Some relevant business Transactions (year) of A ltd Income Statement
Started Business with cash 500,000 Sales 2000000
Availed 10% Loan 250,000 Divident 20,000
Cost of raw material (RM) purchased and used 375,000 2,020,000
Purchased shares of M ltd 250,000 COGS 375,000
Salary paid 275,000 Salary paid 275,000
Factory 25% Rent (due but not paid) 300,000
Admin 70% 950,000
Sales 5% PBDITA 1,070,000
Rent (due but not paid) 300,000 Dep 125000
Factory 30% Impairment loss 28,000
Admin 50% PBIT 917,000
Sales 20% Interest 25,000
Plant purchased on 1st April 500,000 PBT 892,000
Depreciation :25% 25% Tax 223000
Impairment loss 28,000 PAT 669,000
Interest on loan paid fully 25,000
Dividend received 20,000
Units produced 5,000
Sold all units at price 400
Tax 25%

Required Difference in profit

Income statement IS 669,000
Cost sheet CS 925,000
Difference in profit -256,000
 Reason for the difference
Tax 223,000
Interest 25,000
Impairemnt 28,000
Divident -20,000
256,000
 Cost sheet
DM 375,000
DL 68,750
DE 0
Prime Cost 443,750 41%
MO
Rent (due but not paid) 90,000
Salary 0
Dep 125000
215,000
Product Cost 658,750 61%
NMO
AO
Salary 192,500
Rent 150000
SDO
Salary 13750
Rent 60000
Total 73750
Total cost 1,075,000
Profit 925,000
Sales 2000000

Difference between : is - variation of profit/ cs(varaition of cost)

in is salary as expense but in / cs where did to include
so cs is more about decsion making
 In both exercise assumption is

can put in mo as well

impairement is market value-bookvalue

if(mv)<(bv)(cost-accumulation dep)-impairement
if(mv)>(bv)(cost-accumulation dep)-revenuye rise
so not include imapirement cost- since it is amarket flucation- therefore not take in cost

rence between : is - variation of profit/ cs(varaition of cost)

salary as expense but in / cs where did to include
is more about decsion making
 Cost information_April Cost sheet
Raw material purchased and used 250,000 DM 250,000
Plant Purchased ( life =10) 420,000 DL 185,000
Direct Wages 185,000
Rent for factory building 250,000 Prime Cost 435,000
Rent for admin building 100,000 Manufacturing OH
Rent for show room 25,000 Depreciation 3,500
Salary of admin staff 50,000 Rent for factory building 250,000
Salary of factory manager 200,000 Salary of factory manager 200,000
Salesmen salary 60,000 453,500
Units Produced 2,000 Product cost 888,500
Depreciation 3,500 Non manufacturing OH
Examine cost Admin overhead
Rent for admin building 100,000
Salary of admin staff 50,000
Sales overheads
Rent for show room 25,000
Salesmen salary 60,000
235,000
Total Cost 1,123,500
 Cost information_April TC
Raw material purchased and used 250,000 MC 250,000
Plant Purchased ( life =10) 420,000 LC 185,000
Direct Wages 185,000 Expenses 688,500
1,123,500
Rent for factory building 50,000
Rent for admin building 250,000 Cost Sheet
Rent for show room 25,000 DM 250,000
Salary of admin staff 220,000 DL 185,000
Salary of factory manager 80,000 DE 0
Salesmen salary 60,000 Prime Cost 435,000
Units Produced 2,000 Add MO
Rent for factory building 50,000
Dep 3,500 Salary of factory manager 80,000
Dep 3,500
133,500
688,500 688,500 Cost of manufacturing 568,500
Add A &SD OV
Rent for admin building 250,000
Salary of admin staff 220,000
Rent for show room 25,000
Salesmen salary 60,000
555,000
Total Cost 1,123,500
 Cost information_April TC
Raw material purchased and used 250,000 MC 250,000
Plant Purchased ( life =10) 420,000 LC 185,000
Direct Wages 185,000 Expenses 688,500
1,123,500
Rent for factory building 50,000
Rent for admin building 50,000 Cost Sheet
Rent for show room 225,000 DM 250,000
Salary of admin staff 20,000 DL 185,000
Salary of factory manager 80,000 DE 0
Salesmen salary 260,000 Prime Cost 435,000
Units Produced 2,000 Add MO
Rent for factory building 50,000
Dep 3,500 Salary of factory manager 80,000
Dep 3,500
 133,500
688,500 688,500 Cost of manufacturing 568,500
Add A &SD OV
Rent for admin building 50,000
Salary of admin staff 20,000
Rent for show room 225,000
Salesmen salary 260,000
555,000
Total Cost 1,123,500
22%
16%
61%

39%

12%

49%
22%
16%
61%

39%
12%

49%
 Information for the January Cost sheet
Raw material Purchased 200,000 DM
Plant Purchased ( life =5) 420,000 DL
Transport cost on Plant DE
for Plant 30,000 Prime cost
for raw material 15,000 MO
Direct Wages 85,000 Rent for factory building
Royalty for using know-how 60,000 Salary of factory manager
Rent for factory building 30,000 Deprication
Rent for admin building 50,000 Transport cost on Plant
Rent for show room 55,000 Product cost
Salary of admin staff 120,000 NMO
Salary of factory manager 40,000 AO
Salesmen salary 60,000 Rent for admin building
Units Produced 2,000 Salary of admin staff
Purchased shares of Tata steel 25,000 SDO
Rent for show room
Find cost Salesmen salary

Total Cost
st sheet
200,000
85,000
60,000
345,000

30,000
40,000
7,000
45,000
467,000

50,000
120,000

55,000
60,000
285,000
752,000
 Business Transactions Income Statement
Started Business with cash 500,000 Sales
Availed 10% Loan 250,000
Cost of raw material (RM) purchased and used 375,000 Salary paid
cost of cleaning of material _ not paid 25,000 Rent (due but not paid)
Charges for using knowhow for processing the RM 125,000 Electricity (paid)
Charges for using knowhow for processing the RM
Salary paid 275,000 cost of cleaning of material _ not paid
Factory 25% Cost of raw material (RM) purchased and used
Admin 70% PBDITA
Sales 5% Interest
Rent (due but not paid) 300,000 PBT
Factory 30% Taxes
Admin 50% PAT
Sales 20%
Electricity (paid) 275,000
Factory 25%
Admin 65%
Sales 10%
Interest due but not paid
Units produced 5,000
Sold all units at price 400
Tax 25% 625,000

Required
Income statement
Cost sheet
 Cost sheet
2,000,000 DM 375,000
DL 68750
275,000 DE 125,000
300,000 Prime cost 568,750
275,000 MO
125,000 Rent (due but not paid) 90000
25,000 Electricity (paid) 68750
375,000leaning of material _ not paid 25,000
625,000 183750
25,000 Product cost 752,500
600,000 NMO
150,000 AO
450,000 Salary paid 192500
Rent (due but not paid) 150000
Electricity (paid) 178750
521250
SDO
Salary paid 13750
Rent (due but not paid) 60000
Electricity (paid) 27500
101250
622,500
Total Cost 1,375,000
Sales 2,000,000
Profit 625,000
 Business Transactions Income Statement
Started Business with cash 200,000 Sales
Availed 10% Loan 500,000 Dividend Recived from X

Purchased RM 200,000 Salary

Purchased Shares of X ltd 50,000 Electricity
Rent 25,000 Transport
Factory 60% Purchased RM
Admin 40% Rent
Salary 80,000
Factory 30% PBDITA
Admin 50% Interest
Sales 20% PBT
Tax
Electricity 26,000 PAT
Factory 50%
Admin 20%
Sales 30%
Transport 18,000
Purchase Related 10%
Sales Related 90%
Interest paid
Dividend Recived from X 15,000
Units produced 2,000
Sold all units at price 400
Income Statement Cost Sheet
800000 DL 200,000
15,000 DM 24000
815,000 DE 0
80,000 Prime cost 224,000
26,000 MO
18,000 Rent 15000
200,000 Electricity 13000
25,000 Transport 1800
349,000 Product Cost 253,800
466,000 NMO
50000 AO
416,000 Rent 10000
0 Salary 40000
416,000 Electricity 5200
Transport 0
SDO
Rent 0
Salary 16000
Transport 16200
Electricity 7800
95200
Total Cost 349,000
Sales 800000
Profit 451,000
 Started business with cash of Rs. 100,000
Availed 10% loan: 300,000 and used the money to purchas plant
(life: 10 years)
Purchased raw material : 50000 units @ 5 on credit
Wages: 10,000 per month
Office Rent for month: 10000
Factory rent: 15000 per month
Factory manager salary: 18000 per month
Office manager’s salary: 20000 per month
Sales manager’s salary: 25000 per month
Production the first month: 10 000 units and entire stock sold @
100 for cash
Purchased shares for Rs. 20,000 and sold at the end of the month
for 21500

Required: Cost Sheet