Cost Sheet
Content
COST & MANAGEMENT ACCOUNTING
MARATHA MANDIR’S BABASAHEB GAWDE INSTITUTE OF MANAGEMENT STUDIES MMS-I DIV-A SEMESTER-2 SUBJECT: COST & MANAGEMENT ACCOUNTING SUBMITTED TO: Prof. M.A.GANACHARI SUBMITTED BY: NAME BHARAT GAIKWAD SHANKAR GAJARE AARTI GAJUL SAGAR GARDAS TUSHAR GAWALI ROLL NO. 16 17 18 19 20
BGIMS
Page 1
COST & MANAGEMENT ACCOUNTING
1. Explain the Term Cost Sheet Meaning A document that reflects the cost of the items and services required by a particular project or department for the performance of its business purposes. For example, a departmental cost sheet might include the material costs, labor costs and overhead costs incurred over a given time frame by a department and it therefore provides a record of costs that are chargeable to that department. Cost sheet is a statement, which shows various components of total cost of a product. It classifies and analyses the components of cost of a product. Previous period’s data is given in the cost sheet for comparative study. It’s a statement which shows per unit cost in addition to Total Cost. Selling price is ascertained with the help of cost sheet. The details of total cost presented in the form of a statement are termed as Cost sheet. Cost accounting is a process of collecting, analyzing, summarizing and evaluating various alternative courses of action. Its goal is to advise the management on the most appropriate course of action based on the cost efficiency and capability. Cost accounting provides the detailed cost information that management needs to control current operations and plan for the future. Cost sheet can be prepared on historical basis or estimated basis.
Historical Cost:Historical Cost sheet is prepared on the basis of actual cost incurred. A statement of cost prepared after incurring the actual cost is called Historical Cost Sheet. Estimated Cost:Estimated cost sheet is prepared on the basis of estimated cost. The statement prepared before the commencement of production is called estimated cost sheet. Such cost sheet is useful in quoting the tender price of a job or a contract. BGIMS Page 2
COST & MANAGEMENT ACCOUNTING
A cost sheet is a statement of cost prepared at given interval of time showing various elements of cost of a product produced, or service rendered during a particular period.
Importance of Cost Sheet:The importance of cost sheet is as follows: 1. Cost ascertainment:The main objective of the cost sheet is to ascertain the cost of a product. Cost sheet helps in ascertainment of cost for the purpose of determining cost after they are incurred. It also helps to ascertain the actual cost or estimated cost of a Job. 2. Fixation of selling price:To fix the selling price of a product or service, it is essential to prepare the cost sheet. It helps in fixing selling price of a product or service by providing detailed information of the cost. 3. Help in cost control:For controlling the cost of a product it is necessary for every manufacturing unit to prepare a cost sheet. Estimated cost sheet helps in the control of material cost, labor cost and overheads cost at every point of production. 4. Facilitates managerial decisions:It helps in taking important decisions by the management such as: whether to produce or buy a component, what prices of goods are to be quoted in the tender, whether to retain or replace an existing machine etc.
BGIMS
Page 3
COST & MANAGEMENT ACCOUNTING
Objective:The purpose of this standard is to bring uniformity in the principles and methods used for determining the cost of production of excisable goods used for captive consumption. The cost statement prepared based on standard will be used for determination of assessable value of excisable goods used for captive consumption. The standard and its disclosure requirement will provide better transparency in the valuation of excisable goods used for captive consumption. Cost are a sum total of all expenditures incurred in producing and selling a product or in rendering a service or in performing a job. For example, for making a wooden table, money has to spend for three elements like raw material (Wood), labor (Wages to carpenter) and other expenses (rent, insurance, lighting, etc.). The total sum spent on material, labor and expenses constitutes the cost of the wooden table.
BGIMS
Page 4
COST & MANAGEMENT ACCOUNTING
ELEMENTS OF COST ARE: Basic cost elements are: 1. Raw materials 2. Labor 3. Indirect expenses/overhead
Material (Material is a very important part of business)
Direct material/Indirect material
Labor
Direct labor/Indirect labor
Overhead (Variable/Fixed)
Production or works overheads Administration overheads Selling overheads Distribution overheads Maintenance & Repair Supplies Utilities Other Variable Expenses Salaries Occupancy (Rent) Depreciation Other Fixed Expenses
System of calculating the cost is called costing. This cost may be actual or estimated. We know that we go to different steps of production when we produce any product. At every stage of production, we need to calculate the cost of raw material, labor cost and direct and indirect cost. We allocate the different expenses under a system and this system is called costing.
BGIMS
Page 5
COST & MANAGEMENT ACCOUNTING
2. Cost sheet related to profit & Loss A/c: The main purposes or advantages of cost sheet are:
It discloses the total cost and the cost per unit of the units produced during the given period.
It enables a manufacture to keep a close watch and control over the cost of production. By providing a comparative study of the various elements of current cost with the past results and standard costs, it is possible to find out causes of variation in costs and to eliminate the adverse factors and conditions which go to increase the total cost.
It acts as guide to the manufacturer and helps him in formulating a definite useful production policy.
It helps in fixing up the selling price more accurately. It helps the businessman to minimize the cost of production when there is a cut throat competition.
It helps the businessman to submit quotations with reasonable degree of accuracy against tenders for the supply of goods.
Dividend & Interest received, Rent received. Cash discount allowed, Interest debentures, Commission received, Interest on capital, Profit /loss on sale of fixed assets.
Cost account records both historical and estimated costs data. So it can give idea what will be effect of this in profit and loss account.
To provide cost information to management so management take some decision and reduce wastages.
A business that is responsible for all activities involved in the production and sale of products or service. It is responsible for the maximization of profit.
Direct wages and salaries shall include house rent allowance, overtime and incentive payments made to employees directly engaged in the manufacturing activities.
BGIMS
Page 6
COST & MANAGEMENT ACCOUNTING
3. Utility of Cost-sheet i. ii. iii. iv. v. vi. vii. viii. ix. x. Important Fixation of selling price To fix the selling price of a product or service, it is essential to prepare the Cost sheet. It helps in fixing selling price of a product or service by providing Detailed information of the cost. Unit to prepare a cost sheet. Estimated cost sheet helps in the control of Material cost, labor cost and overheads cost at every point of production. Facilitates managerial decisions It helps in taking important decisions by the management such as: whether to produce or buy a component, what prices of goods are to be quoted in It discloses the total cost and the cost per unit of the units produced during the given period. xi. xii. It enables a manufacture to keep a close watch and control over the cost of production. By providing a comparative study of the various elements of current cost with the past results and standard costs, it is possible to find out causes of variation in costs and to eliminate the adverse factors and conditions which go to increase the total cost. xiii. It acts as guide to the manufacturer and helps him in formulating a definite useful production policy. xiv. xv. It helps in fixing up the selling price more accurately. It helps the businessman to minimize the cost of production when there is a cut throat competition. xvi. It helps the businessman to submit quotations with reasonable degree of accuracy against tenders for the supply of goods. xvii. xviii. xix. It reveals total cost and cost per unit. It discloses components of total cost. With the help of cost sheet, management can easily compare the costs of two periods. Such comparison is helpful in detecting inefficiency and wastages. xx. It acts as a guide to the producer and helps him in framing production policies. It provides information for preparation of tenders, quotations and estimates
BGIMS
Page 7
COST & MANAGEMENT ACCOUNTING
IILUSTRATION: From the following information, prepare a cost sheet for period ended on 31st March 2006. Particulars Opening stock of raw material Purchases of raw material Closing stock of raw material Direct wages Direct expenses Factory overheads Office and administrative overheads Selling and distribution overheads Cost of opening stock of finished goods Cost of Closing stock of finished goods Profit on cost 20% Amount in Rs. 12,500 1,36,000 8,500 54,000 12,000 100% of direct wages 20% of works cost 26,000 12,000 15,000
BGIMS
Page 8
COST & MANAGEMENT ACCOUNTING
Solution:COST SHEET Particulars Direct Material : Material consumed Opening ‘stock of raw material Add: Purchases Amount (Rs.) 12500 136000 148500 Amount (Rs.)
BGIMS
Page 9
MARATHA MANDIR’S BABASAHEB GAWDE INSTITUTE OF MANAGEMENT STUDIES MMS-I DIV-A SEMESTER-2 SUBJECT: COST & MANAGEMENT ACCOUNTING SUBMITTED TO: Prof. M.A.GANACHARI SUBMITTED BY: NAME BHARAT GAIKWAD SHANKAR GAJARE AARTI GAJUL SAGAR GARDAS TUSHAR GAWALI ROLL NO. 16 17 18 19 20
BGIMS
Page 1
COST & MANAGEMENT ACCOUNTING
1. Explain the Term Cost Sheet Meaning A document that reflects the cost of the items and services required by a particular project or department for the performance of its business purposes. For example, a departmental cost sheet might include the material costs, labor costs and overhead costs incurred over a given time frame by a department and it therefore provides a record of costs that are chargeable to that department. Cost sheet is a statement, which shows various components of total cost of a product. It classifies and analyses the components of cost of a product. Previous period’s data is given in the cost sheet for comparative study. It’s a statement which shows per unit cost in addition to Total Cost. Selling price is ascertained with the help of cost sheet. The details of total cost presented in the form of a statement are termed as Cost sheet. Cost accounting is a process of collecting, analyzing, summarizing and evaluating various alternative courses of action. Its goal is to advise the management on the most appropriate course of action based on the cost efficiency and capability. Cost accounting provides the detailed cost information that management needs to control current operations and plan for the future. Cost sheet can be prepared on historical basis or estimated basis.
Historical Cost:Historical Cost sheet is prepared on the basis of actual cost incurred. A statement of cost prepared after incurring the actual cost is called Historical Cost Sheet. Estimated Cost:Estimated cost sheet is prepared on the basis of estimated cost. The statement prepared before the commencement of production is called estimated cost sheet. Such cost sheet is useful in quoting the tender price of a job or a contract. BGIMS Page 2
COST & MANAGEMENT ACCOUNTING
A cost sheet is a statement of cost prepared at given interval of time showing various elements of cost of a product produced, or service rendered during a particular period.
Importance of Cost Sheet:The importance of cost sheet is as follows: 1. Cost ascertainment:The main objective of the cost sheet is to ascertain the cost of a product. Cost sheet helps in ascertainment of cost for the purpose of determining cost after they are incurred. It also helps to ascertain the actual cost or estimated cost of a Job. 2. Fixation of selling price:To fix the selling price of a product or service, it is essential to prepare the cost sheet. It helps in fixing selling price of a product or service by providing detailed information of the cost. 3. Help in cost control:For controlling the cost of a product it is necessary for every manufacturing unit to prepare a cost sheet. Estimated cost sheet helps in the control of material cost, labor cost and overheads cost at every point of production. 4. Facilitates managerial decisions:It helps in taking important decisions by the management such as: whether to produce or buy a component, what prices of goods are to be quoted in the tender, whether to retain or replace an existing machine etc.
BGIMS
Page 3
COST & MANAGEMENT ACCOUNTING
Objective:The purpose of this standard is to bring uniformity in the principles and methods used for determining the cost of production of excisable goods used for captive consumption. The cost statement prepared based on standard will be used for determination of assessable value of excisable goods used for captive consumption. The standard and its disclosure requirement will provide better transparency in the valuation of excisable goods used for captive consumption. Cost are a sum total of all expenditures incurred in producing and selling a product or in rendering a service or in performing a job. For example, for making a wooden table, money has to spend for three elements like raw material (Wood), labor (Wages to carpenter) and other expenses (rent, insurance, lighting, etc.). The total sum spent on material, labor and expenses constitutes the cost of the wooden table.
BGIMS
Page 4
COST & MANAGEMENT ACCOUNTING
ELEMENTS OF COST ARE: Basic cost elements are: 1. Raw materials 2. Labor 3. Indirect expenses/overhead
Material (Material is a very important part of business)
Direct material/Indirect material
Labor
Direct labor/Indirect labor
Overhead (Variable/Fixed)
Production or works overheads Administration overheads Selling overheads Distribution overheads Maintenance & Repair Supplies Utilities Other Variable Expenses Salaries Occupancy (Rent) Depreciation Other Fixed Expenses
System of calculating the cost is called costing. This cost may be actual or estimated. We know that we go to different steps of production when we produce any product. At every stage of production, we need to calculate the cost of raw material, labor cost and direct and indirect cost. We allocate the different expenses under a system and this system is called costing.
BGIMS
Page 5
COST & MANAGEMENT ACCOUNTING
2. Cost sheet related to profit & Loss A/c: The main purposes or advantages of cost sheet are:
It discloses the total cost and the cost per unit of the units produced during the given period.
It enables a manufacture to keep a close watch and control over the cost of production. By providing a comparative study of the various elements of current cost with the past results and standard costs, it is possible to find out causes of variation in costs and to eliminate the adverse factors and conditions which go to increase the total cost.
It acts as guide to the manufacturer and helps him in formulating a definite useful production policy.
It helps in fixing up the selling price more accurately. It helps the businessman to minimize the cost of production when there is a cut throat competition.
It helps the businessman to submit quotations with reasonable degree of accuracy against tenders for the supply of goods.
Dividend & Interest received, Rent received. Cash discount allowed, Interest debentures, Commission received, Interest on capital, Profit /loss on sale of fixed assets.
Cost account records both historical and estimated costs data. So it can give idea what will be effect of this in profit and loss account.
To provide cost information to management so management take some decision and reduce wastages.
A business that is responsible for all activities involved in the production and sale of products or service. It is responsible for the maximization of profit.
Direct wages and salaries shall include house rent allowance, overtime and incentive payments made to employees directly engaged in the manufacturing activities.
BGIMS
Page 6
COST & MANAGEMENT ACCOUNTING
3. Utility of Cost-sheet i. ii. iii. iv. v. vi. vii. viii. ix. x. Important Fixation of selling price To fix the selling price of a product or service, it is essential to prepare the Cost sheet. It helps in fixing selling price of a product or service by providing Detailed information of the cost. Unit to prepare a cost sheet. Estimated cost sheet helps in the control of Material cost, labor cost and overheads cost at every point of production. Facilitates managerial decisions It helps in taking important decisions by the management such as: whether to produce or buy a component, what prices of goods are to be quoted in It discloses the total cost and the cost per unit of the units produced during the given period. xi. xii. It enables a manufacture to keep a close watch and control over the cost of production. By providing a comparative study of the various elements of current cost with the past results and standard costs, it is possible to find out causes of variation in costs and to eliminate the adverse factors and conditions which go to increase the total cost. xiii. It acts as guide to the manufacturer and helps him in formulating a definite useful production policy. xiv. xv. It helps in fixing up the selling price more accurately. It helps the businessman to minimize the cost of production when there is a cut throat competition. xvi. It helps the businessman to submit quotations with reasonable degree of accuracy against tenders for the supply of goods. xvii. xviii. xix. It reveals total cost and cost per unit. It discloses components of total cost. With the help of cost sheet, management can easily compare the costs of two periods. Such comparison is helpful in detecting inefficiency and wastages. xx. It acts as a guide to the producer and helps him in framing production policies. It provides information for preparation of tenders, quotations and estimates
BGIMS
Page 7
COST & MANAGEMENT ACCOUNTING
IILUSTRATION: From the following information, prepare a cost sheet for period ended on 31st March 2006. Particulars Opening stock of raw material Purchases of raw material Closing stock of raw material Direct wages Direct expenses Factory overheads Office and administrative overheads Selling and distribution overheads Cost of opening stock of finished goods Cost of Closing stock of finished goods Profit on cost 20% Amount in Rs. 12,500 1,36,000 8,500 54,000 12,000 100% of direct wages 20% of works cost 26,000 12,000 15,000
BGIMS
Page 8
COST & MANAGEMENT ACCOUNTING
Solution:COST SHEET Particulars Direct Material : Material consumed Opening ‘stock of raw material Add: Purchases Amount (Rs.) 12500 136000 148500 Amount (Rs.)
BGIMS
Page 9
