COST SHEET

Authored by
Amit Kumar De
M.COM., M.A.,M.B.A.,
M.Phil.,A.I.C.W.A., L.L.B.,PGDFA,CFM
 Basic Cost Concepts & Cost Sheet
CONTENTS OBJECTIVES
Types of Costs
By Nature of Element • Types of Costs
By Functions
By Traceability
• Cost Units
• Cost Centers
Cost Units
Cost Centers • Characteristics of Cost
Information
Characteristics of Cost Information
Cost Behavior and Cost Estimation • Cost Behavior and Cost
Estimation
Cost Sheet
 What Is COST
Cost is any • Given thing can be

amount of • The Product or the

expenditure Service
incurred or
• Activity can be
attributed on a
given thing or • Production process or
activity operation of service
 TYPES OF COSTS
Cost classification is the process of grouping costs
according to their common characteristics. A suitable
classification of costs is very helpful in identifying a
given cost with cost centers or cost units.

Classification of costs can be done in the following

broad ways:

• NATURE OF ELEMENT

• FUNCTIONS

• TRACEABILITY
 CLASSIFICATION OF COST - BY NATURE OF ELEMENT
The costs are divided into three categories i.e. Materials, Labor and
Overheads.
1. Materials: Materials are the principal
substances that go into the production process
and are transformed into finished goods.
2. Labor: Labor refers to the human effort to produce
goods and services. It is a factor of production; the
talents, training, and skills of people which contribute to
the production of goods and services.
3. Overheads: Those elements of costs necessary in
the production of an article or the performance of a
service which are of such a nature that the amount
applicable to the product or service cannot be
determined accurately or readily.
Under materials and labor, costs are further
classified into direct and indirect. Direct material
and direct labor form part of finished product cost
and indirect material and indirect labor form part of
overheads,
 CLASSIFICATION OF COST – BY FUNCTION
It leads to grouping of costs according to the broad divisions of
functions of a business undertaking, i.e. production, administration,
selling and distribution. According to this classification costs are
divided as follows:
Manufacturing and Production Costs
The manufacturing and production costs comprise of direct materials, direct labor and
factory overheads.

Manufacturing
Manufacturing
Direct
Direct Direct
Direct
Overhead
Overhead
Materials
Materials Labor
Labor

The Product
CLASSIFICATION OF COST – BY FUNCTION Continued..

Marketing and selling costs & Distribution costs.

– Costs necessary to get the order and deliver the
product.
Administrative costs . . .
– All executive, organizational, and clerical costs.
 CLASSIFICATION OF COST – BY TRACEABILITY
According to this classification, total cost is divided into direct costs and indirect costs.

Direct costs Indirect costs

• Costs that can be
easily and conveniently
traced to a unit of product
or other cost objective.
• Examples: direct material
and direct labor
• Costs cannot be easily and
conveniently traced to a
unit of product or other
cost object.
• Example: manufacturing
overhead
 Cost units & Cost centers
Cost unit
Managers are often interested in knowing the cost of something. The
‘something’ for which the cost has to be ascertained is known as cost
objective or cost object or cost unit. Examples of cost units include products,
activities, departments, number of patients treated, sales regions, etc.

Cost centers
The smallest segment of activity or area of responsibility for which costs are
accumulated.
Example, in a Manufacturing company, the raw materials may be purchased by a
purchase department, stocked up in a store, processed in one or more processing
departments packed in a packing department and sold by a sales and distribution
department. Here each, department is considered as a cost center.
 Characteristics of cost information
Cost accounting provides information that helps planning, control and
decision- making.

Cost Tracing
Tracing of costs is an attempt to assign costs on the basis of their
cause. The costs which can be traced directly to a specific cost
objective is direct cost with respect to that cost objective and the costs
which cannot be traced directly to a specific cost objective is indirect
cost with respect to that cost objective. Tracing of costs is essential for
two primary reasons: the cost control and product costing.

Cost Allocation
The process of assigning the costs in the cost pool to the cost
objects is called cost allocation or cost distribution.
 Direct Expenses
• Such cost which is not material nor labor cost but can
be directly traced to the cost unit
( Product or service ) or cost centre(Production
process or Operation)

• Example : Hiring charges of Special machine or crane

required to produce a special product

• Very few, in many case absent

 EQUATIONS
Direct Raw Material Cost + Direct Labor Cost +
Direct Expenses = PRIME COST

Overhead Cost = Indirect Material Cost + Indirect

Labor Cost + Indirect Expenses = Factory Overheads
+ Administrative Overhead + Selling & Distribution
Overhead

Total Product Cost = Prime Cost + Overhead Cost

 COST SHEET
Specimen of cost sheet
Particulars Total Cost Cost per
(Rs.) unit(Rs.)

Direct Materials
Direct Labor
Prime Cost
Add: Works Overheads
Works cost
Add: Administration overheads
Cost of Production
Add: Selling and Distribution Overheads
Total Cost or Cost of Sales
Profit
 Item Excluded from Cost Sheet
• Capital Expenditure : Purchase of Machine or
computer etc.

• Appropriation of Profit: Income Tax or Dividend paid

• Purely Financial Expenditure: Interest on loan paid,

discount on issue of share

• Non operational items: Bad debts

 PROBLEM
• ABC Ltd. Furnishes following data for manufacturing a
product for the month of May 2020.
• Raw material consumed Rs. 15,000
• Direct labour Rs. 9,000
• Administrative overhead 20 % of works cost
• Selling & distribution overhead Re. 0.50 per unit
• Units produced 17100 units
• Units sold 16000 units @ Rs. 4 per
unit
• Calculate (a) cost per unit (b) profit for the period