CHAPTER

Cost Sheet (or) Statement of Cost

ELEMENTS OF COST
Introduction
Elements of cost are necessary to have a proper classification
and analysis of total cost. Thus, elements of cost provide the
management with necessary information for proper control and
management decisions. For this purpose, the total cost is
analysed by the elements or nature of cost, i.e., material, labour
and overheads. The various elements of costs may be illustrated
as below:
(I) Materials Cost
Materials Costs refer to cost of materials which are the major
substances used in production and are converted into finished
goods and semi-finished goods. Materials are grouped as direct
materials and indirect materials.
Direct Materials: Direct materials are those that form part of a
product. Raw materials, semi-finished products, and finished
products which can be identified with production of a product
are known as direct materials. Sugar cane, cotton, oilseeds,
woods etc. are examples of direct materials. The cost of
materials involves conversion of raw materials into finished
products.
Indirect Materials: Material costs, other than direct material
cost are known as indirect material cost. Indirect materials
cannot be identified with a particular unit of cost or product.
Indirect materials are indirectly used for producing the products.
Lubricating oil, consumable stores, fuel, design, layout etc. are
examples of indirect material cost.

(II) Labour Cost

In actual production of the product, labour is the prime factor
which is physically and mentally involved. The payment of
remuneration of wages is made for their effort. The labour costs
are grouped into (a) Direct Labour and (b) Indirect Labour.
(a) Direct Labour: Direct labour cost or direct wages refer to
those specifically incurred for or can be readily charged to or
identified with a specific job, contract, work order or any other
unit of cost are termed as direct labour cost. Wages for
supervision, wages for foremen, wages for labours who are
actually engaged in operation or process are examples of direct
labour cost.
(b) Indirect Labour: Indirect labour is for work in general. The
importance of the distinction lies in the fact that whereas direct
labour can be identified with and charged to the job, indirect
labour cannot be so charged and has therefore to be treated as
part of the factory overheads to be included in the cost of
production. Examples are salaries and wages of supervisors,
store keepers, maintenance labour etc.
(III) Expenses
All expenses are other than material and labour that are incurred
for a particular product or process. They are defined by ICMA
as "The cost of service provided to an undertaking and the
notional cost of the use of owned assets." Expenses are further
grouped into (a) Direct Expenses and (b) Indirect Expenses. ,
(a) Direct Expenses: Direct expenses which are incurred
directly and identified with a unit of output or process are
treated as direct expenses. Hire charges of special plant or tool,
royalty on product, cost of special pattern etc. are the examples
of direct expenses.
(b) Indirect Expenses: Indirect expenses are expenses other
than indirect materials and indirect labour, which cannot be
directly identified with a unit of output. Rent, power, lighting,
repairs, telephone etc. are examples of indirect expenses.
Overheads
All indirect material cost, indirect labour cost, and indirect
expenses are termed as Overheads. Overheads may also be
classified into (a) Production or Factory Overhead (b) Office
and Administrative Overheads (c) Selling Overhead and (d)
Distribution Overhead.
(a) Production Overhead: Production Overhead is also termed
as Factory Overhead. Factory overhead includes indirect
material, indirect labour and indirect wages which are incurred
in the factory. For example, rent of factory building, repairs,
depreciation, wages of indirect workers, etc.
(b) Office and Administrative Overhead: Office and
Administrative Overhead is the indirect expenditure incurred in
formulating the policies, establishment of objectives, planning,
organizing and controlling the operations of an undertaking. All
office and administrative expenses like rent, staff salaries,
postage, telegram, general expenses etc. are examples.
(c) Selling Overhead: Selling Overhead is the indirect expenses
which are incurred for promoting sales, stimulating demand,
securing orders and retaining customers. For example,
advertisement, salesmen's commission, salaries of salesmen etc.
(d) Distribution Overhead: These costs are incurred from the
time the product is packed until it reaches its destination. Cost of
warehousing, cost of packing, transportation cost etc. are some
of the examples of distribution overhead.

Importance of Cost Sheet

(1) It provides for the presentation of the total cost on the basis
of the logical classification.
(2) Cost sheet helps in determination of cost per unit and total
cost at different stages of production.
(3) Assists in fixing of selling price.
(4) It facilitates effective cost control and cost comparison.
(5) It discloses operational efficiency and inefficiency to the
management for taking corrective actions.
(6) Enables the management in the preparation of cost estimates
to tenders and quotations.
 COST SHEET – FORMAT (American method)
Particulars Amount Amount
Opening Stock of Raw Material ***
Add: Purchase of Raw materials ***
Add: Purchase Expenses (carriage inwards) ***
Less: Closing stock of Raw Materials ***
Raw Materials Consumed ***
Direct Wages (Labor) ***
Direct Charges (other direct expenses) ***
Prime cost (1) ***
Add :- Factory Over Heads:
Factory Rent ***
Factory Power ***
Indirect Material ***
Indirect Wages ***
Supervisor (Factory) Salary ***
Factory Insurance ***
Factory Asset Depreciation ***
Others factory related expenses ***
Works cost/ Production cost/ Factory cost ***
(2)
Add: Opening Stock of WIP ***
Less: Closing Stock of WIP ***
Cost of goods manufactured (3) ***
Add: Opening stock of Finished Goods ***
Less: Closing stock of Finished Goods ***
Cost of Goods Sold (4) ***
Add:- Administration Over Heads:-
Office Rent ***
 Depreciation of office related assets ***
General Charges ***
Audit Fees ***
Bank Charges ***
Salary of office staff ***
Other Office Expenses ***
Insurance of office ***

Add:- Selling and Distribution OH:- ***

Salesman Commission ***
Sales man salary ***
Traveling Expenses ***
Advertisement ***
Delivery man expenses ***
Sales Tax/import duty ***
Bad Debts
Cost of Sales (5) ***
Profit / Loss (6) ***
Sales (7) ***
Exercise: 1
From the following particulars of Borno Constructions Pvt. Ltd. for the year ended
December 31, 2019, prepare a Cost Sheet showing cost of Materials Consumed,
prime cost, works cost/ production cost/ factory cost, cost of goods manufactured,
cost of goods sold, cost of sales, profit / loss.
Stock of raw materials (31.12.2018) 20,000
Opening stock of work in progress 10,000
Opening stock of finished goods 50,000
Raw materials purchased 5,00,000
Direct wages 3,80,000
Sales for the year 12,00,000
Stock of raw materials (31.12.2019) 75,000
Closing stock of work in progress 15,000
Factory overhead 80,000
Direct expenses 50,000
Office and Administrative overhead 60,000
Selling and Distribution expenses 30,000
Closing stock of Finished Goods 40,000
 Solution:
Borno Constructions Pvt. Ltd.
Cost Statement / Cost Sheet
For the year ended December 31st 2019
Particulars Amount Amount Amount
Opening stock of raw materials 20,000
(+) Raw materials purchased 5,00,000
5,20,000
(-) Closing stock of raw materials (75,000)
Materials consumption 4,45,000 4,45,000
(+)Direct wages 3,80,000
(+)Direct expenses 50,000
Prime Cost 8,75,000 8,75,000
(+) Factory overhead 80,000
Works cost / Production cost/Factory 9,55,000 9,55,000
cost
Add: Opening Stock of WIP 10,000
9,65,000
Less: Closing Stock of WIP (15,000)
Cost of goods manufactured 9,50,000 9,50,000
Add: Opening stock of Finished Goods 50,000
10,00,000
Less: Closing stock of Finished Goods (40,000)
Cost of Goods Sold 9,60,000 9,60,000
(+) office and administrative overhead 60,000
10,20,000
Add: Selling and Distribution expenses 30,000
Cost of Sales 10,50,000 10,50,000
Profit 1,50,000
Sales 12,00,000
 Exercise: 2
From the following particulars of Inchepta Constructions Ltd. for the year ended
December 31, 2019, prepare a Cost Sheet showing cost of, prime cost, works cost/
production cost/ factory cost, cost of goods manufactured, cost of goods sold, cost
of sales, profit / loss.
Particulars Tk. Particulars Tk.
Raw Materials purchased 5,00,000Up keeping of Vehicles 50,000
Salaries of salesmen 2,50,000Depreciation Plant & Machinery 1,00,000
Direct Wages 3,00,000Bank charges 2,000
Direct Expenses 1,00,000Commission on sales 50,000
Factory Rent and rates 30,000Rent and rates (Office) 75,000
Indirect Wages (Factory) 20,000Stock of W-I-P (01.01.2019) 25,000
Water supply (Factory) 20,000Stock of W-I-P (31.12.2019) 1,00,000
Factory Lighting 10,000Director's Remuneration (Office) 50,000
Factory Heating 25,000Factory Cleaning 20,000
Power (Factory) 15,000Sales (Revenues) 20,00,000
Office Stationery 25,000Sundry Office Expenses 50,000
Director's Remuneration (Factory) 30,000Factory Stationery 2,000
Depreciation of office building 50,000Factory Insurance 5,000
Depreciation of Vehicles 40,000Office Insurance 5,000
Bad debts 50,000Legal Expenses (Office) 10,000
Advertising 1,20,000Rent of Warehouse 20,000
Stock of raw materials 50,000Stock of finished goods 45,000
(01.01.2019) (01.01.2019)
Stock of raw materials 70,000 Stock of finished goods 75,000
(31.12.2019) (31.12.2019)
 Inchepta Constructions Ltd.
Cost Statement
For the year ended December 31st 2019
Particulars Amount Amount Amount
Opening stock of raw materials 50,000
(+) Raw materials purchased 5,00,000
5,50,000
(-) Closing stock of raw materials (70,000)
Materials consumption 4,80,000
(+) Direct wages 3,00,000
(+) Direct expenses 1,00,000
Prime Cost 8,80,000 8,80,000
(+) Factory overhead:
Factory Rent and rates 30,000
Indirect Wages (Factory 20,000
Water supply (Factory) 20,000
Factory Lighting 10,000
Factory Heating 25,000
Power (Factory) 15,000
Director's Remuneration (Factory) 30,000
Depreciation Plant & Machinery 1,00,000
Factory Cleaning 20,000
Factory Stationery 2,000
Factory Insurance 5,000
Total factory overhead 2,77,000
Works cost/ Production cost/Factory 11,57,000 11,57,000
cost
Add: Opening Stock of WIP 25,000
11,82,000
Less: Closing Stock of WIP (1,00,000)
Cost of goods manufactured 10,82,000 10,82,000
Add: Opening stock of Finished Goods 45,000
11,27,000
Less: Closing stock of Finished Goods (75,000)
Cost of Goods Sold 10,52,000 10,52,000
Add: Office & administrative overhead:
Office Stationery 25,000
Depreciation of office building 50,000
Bank charges 2,000
Rent and rates (Office 75,000
Director's Remuneration (Office) 50,000
Sundry Office Expenses 50,000
Office Insurance 5,000
Legal Expenses (Office) 10,000
Total 2,67,000
Add: Selling and Distribution expenses:
Depreciation of Vehicles 40,000
Bad debts 50,000
Advertising 1,20,000
Salaries of salesmen 2,50,000
Up keeping of Vehicles 50,000
Commission on sales 50,000
Rent of Warehouse 20,000
Total 5,80,000
Cost of Sales 18,99,000 18,99,000
Profit 1,01,000
Sales 20,00,000
Exercise: 03
From the following particulars of Alpha Developer’s Ltd., prepare a Cost Sheet
showing cost of, prime cost, works cost/ production cost/ factory cost, cost of
goods manufactured, cost of goods sold, cost of sales, profit / loss.
On 1st January 2019: Finished goods in Stock Tk. 50,000, Work in progress Tk.
40,000, and Raw materials Tk. 1,00,000. The information available from cost
records for the year ended 31 December, 2019 was as follows:
Purchase of raw materials 8,00,000
Direct wages 3,00,000
Carriage inward 40,000
Indirect wages 90,000
Factory Lighting 75,000
Power (Factory) 1,00,000
Director's Remuneration (Factory) 1,00,000
Stock on raw materials (31.12.2019) 80,000
Work in progress (31.12.2019) 70,000
Sales (Revenues) 25,00,000
Indirect materials 1,75,000
Legal Expenses 50,000
Audit Fees 30,000
Sales man Commission 50,000
Advertisement 30,000
Sales Tax 30,000
Bad Debts 20,000
Stock on finished goods (31.12.2019) 60,000
Solution:
Alpha Developer’s Ltd.
Cost Statement
For the year ended December 31st 2018
Particulars Amount Amount Amount
Opening stock of raw materials 1,00,000
(+) Purchase of raw materials 8,00,000
(+) Carriage inward 40,000
9,40,000
(-) Closing stock of raw materials 80,000
Materials consumption 8,60,000
Direct wages 3,00,000
Prime Cost 11,60,000 11,60,000
(+) Factory overhead:
Indirect wages 90,000
Factory Lighting 75,000
Power (Factory) 1,00,000
Director's Remuneration (Factory) 1,00,000
Indirect materials 1,75,000
Total factory overhead 5,40,000
Works cost/ Production cost/Factory 17,00,000 17,00,000
cost
Add: Opening Stock of WIP 40,000
17,40,000
Less: Closing Stock of WIP (70,000)
Cost of goods manufactured 16,70,000 16,70,000
Add: Opening stock of Finished Goods 50,000
17,20,000
Less: Closing stock of Finished Goods (60,000)
Cost of Goods Sold 16,60,000 16,60,000
Add: office & administrative overhead:
Legal Expenses
Audit Fees 50,000
Total 30,000
80,000
Add: Selling and Distribution expenses:
Sales man Commission 50,000
Advertisement 30,000
Sales Tax 30,000
Bad Debts 20,000
Total 1,30,000
Cost of Sales 18,70,000 18,70,000
Profit 6,30,000
Sales 25,00,000
Exercise: 04
From the following information of Bissas Builders Ltd. for the year 2019 you are
required to prepare: prime cost, works cost/ production cost/ factory cost, cost of
goods manufactured, cost of goods sold, cost of sales, profit / loss.
Stock of raw materials (1.1.2019) 50,000
Purchase of raw materials 1,70,000
Stock of raw materials (31.12.2019) 80,000
Carriage Inward 10,000
Direct Wages 1,50,000
Indirect Wages 20,000
Other Direct Charges 30,000
Office rent and rates 1,000
Factory rent and rates 10,000
Indirect consumption of materials 1,000
Depreciation on plant 3,000
Depreciation on office furniture 200
Salesmen salary 4,000
Salary to office supervisor 5,000
Other factory expenses 11,400
Other office expenses 1,800
General Manager's remunerations:
Office Dept. 4,000
Factory Dept. 8,000
Selling Dept. 12,000
Other selling expenses 2,000
Traveling expenses of salesmen 2,200
Sales 5,00,000
Advertisement 4,000
 Bissas Builders Ltd.
Cost Statement
For the year ended December 31st 2018
Particulars Amount Amount Amount
Opening stock of raw materials 50,000
(+) Purchase of raw materials 1,70,000
(+) Carriage inward 10,000
2,30,000
(-) Closing stock of raw materials 80,000
Materials consumption 1,50,000
Direct wages 1,50,000
Other Direct Charges 30,000
Prime Cost 3,30,000 3,30,000
(+) Factory overhead:
Indirect wages 20,000
Indirect consumption of materials 1,000
Depreciation on plant 3,000
Other factory expenses 11,400
GM remunerations (Factory) 8,000
Total factory overhead 43,400
Works cost/ Production cost/Factory 3,73,400 3,74,400
cost / Cost of goods manufactured /
Cost of Goods Sold
Add: office & administrative overhead:
Office rent and rates 1,000
Depreciation on office furniture 200
Salary to office supervisor 5,000
1,800
Other office expenses
4,000
GM remunerations (Office)
Total 12,000
 Add: Selling and Distribution expenses:
Salesmen salary 4,000
GM remunerations (Selling Dept.) 12,000
Other selling expenses 2,000
Traveling expenses of salesmen 2,200
Advertisement 4,000
Total 24,200
Cost of Sales 4,09,600 4,09,600
Profit 90,400
Sales 5,00,000

Exercise: 06
From the following particulars of newly established Jamuna Pharmaceuticals Ltd.
for the year ended December 31, 2019, prepare a Cost Sheet showing cost of,
prime cost, works cost/ production cost/ factory cost, cost of goods manufactured,
cost of goods sold, cost of sales, profit / loss.
Particulars Tk. Particulars Tk.
Raw Materials purchased 5,00,000 Up keeping of delivery Van 5,000
Direct Wages 3,50,000 Bank charges 5,000
Direct Expenses 3,00,000 Commission on sales 10,000
Factory Rent and rates 1,00,000 Rent and rates (Office) 75,000
Indirect Wages (Factory) 30,000 Salaries of salesmen 25,000
Water supply (Factory) 20,000 Depreciation Plant & Machinery 1,00,000
Factory Lighting 20,000 Director's Remuneration (Office) 50,000
Factory Heating 10,000 Factory Cleaning 20,000
Power (Factory) 25,000 Sales 25,00,000
Office Stationery 15,000 Sundry Office Expenses 5,000
Director's Remuneration (Factory) 25,000 Factory Stationery 5,000
Depreciation of office building 30,000 Factory Insurance 10,000
Depreciation of delivery Van 50,000 Office Insurance 20,000
Bad debts 40,000 Legal Expenses (Office) 45,000
Advertising 50,000 Rent of Warehouse 75,000