Management Notes

# Management Notes

Reference Notes for Management

# Cost Sheet Format – Method of Unit Costing | Introduction to Cost Accounting

## What is Cost Sheet

Cost sheets are documents that detail the costs associated with a cost centre or cost unit. This statement of cost outlines in detail the various components of the cost of goods produced, including prime cost, factory cost, cost of production, total cost, and cost per unit.

Cost sheets are reports on which all the costs of a product or production job are listed. Using a cost sheet, you can calculate the margin earned from a product or job, and use that information to set the price for similar products in the future.

As well as cost control measures, it can be used as a basis for several other measures. Despite its name, a cost sheet can be compiled and viewed on a computer screen as well as on paper.

The cost sheet documents the direct, indirect, fixed, and variable costs a business incurs from beginning to end. The company can then calculate the total production cost and determine the price for each item based on this information.

Service providers can also benefit from cost sheets, although they are more common in production-based businesses. A cost sheet is essential if you need to keep track of resources in your business.

The cost sheet is prepared to determine the cost of a product, a job or an operation, to provide quotes or to determine the price to supply goods or to provide services.

Calculating the cost per unit and determining the selling price of a product are carried out using a cost sheet. Management can identify inefficiencies in production, if any, by comparing cost sheets from the two periods and taking corrective action if necessary.

Preparing cost sheets for various factories that produce the same product are helpful for cost comparisons between factories that are under the same management or are managed differently.

This means that a cost sheet can be used to control costs and reduce costs. There are various types of cost sheets, including simple cost sheets and cost sheets that account for opening and closing stock of work-in-progress and finished goods.

It is clear that there is no golden rule for the sequence in which unit cost and total cost columns should appear. Both can appear before the other.

Key Points,

• As a statement, it is prepared.
• In order to determine prime cost, factory cost, and total cost, expenses are classified.
• In order to facilitate comparison, previous period figures are provided.
• The figures are based on actual and estimated expenses.
• It is prepared for each job and sometimes for the entire factory.

## Importance Cost Sheet

Determining cost: Obtaining an accurate product cost is the primary objective of the cost sheet. The total cost as well as the cost per unit can be found here.

Fixing selling price: A cost sheet is needed so that you can see the details of the production costs of a product so you can fix its selling price.

Cost comparison: Management can compare the current cost of a product with the previous per unit cost for the same product. When costs have increased, management can take corrective measures by comparing them.

Cost control: The cost sheet is an important document for a manufacturing unit as it helps control production costs. A cost estimate sheet can be used to monitor labour, material, and overhead costs during the production process.

Decision-making: The cost sheet plays an important role in many of the decisions that management makes. A business’s managers refer to the cost sheet whenever they need to produce or purchase a component, or when they need to quote prices on a tender.

## Major Purpose of Cost Sheet

### For Management

Creating a cost sheet has as its primary goal the determination of an accurate cost of a product or group of products. It provides the total cost and cost per unit of a product.

By doing so, the management is able to compare a product’s current cost per unit with an earlier cost per unit for the same product. Comparing costs allows management to take corrective action in time if they escalate.

Therefore, a cost sheet is a key document for controlling production costs in a manufacturing unit. Management makes some of its most important decisions based on the cost sheet.

Cost sheets are used whenever a company wants to manufacture a component, buy one, or quote pricing for its products. Cost sheets help management make better decisions, so they always aid in the decision-making process.

### For Customers

From the point of view of the customer, preparing a cost sheet is another significant objective. In order to negotiate the selling price of any new product, manufacturers have to share the cost sheet of their product or group of products with their customers.

Alternatively, it could be for increasing the selling price of a product due to factors such as escalating costs of raw materials and other consumable items, increasing wages, increasing freight, or increasing taxes or duties.

It is also necessary to submit a cost sheet when participating in government tenders for the supply of various items/components. To departments or to large private companies.

## Difference between Cost Sheet and Cost Account

Understanding the difference between a cost sheet and a cost account is desirable. Cost sheets represent elements of production cost incurred at different intervals of time, and are prepared at given intervals.

Through comparative columns, it discloses the cost per unit of output as well as the total cost and allows comparison between a particular period and any of the preceding periods. The cost account statement is a memo and does not form part of the double entry system.

By contrast, a cost account depicts the expenses actually incurred in connection with a particular job, contract or process as part of a double entry cost accounting system.

Cost accounts don’t disclose the outcome of a whole operation for a given period of time, unlike cost sheets that do.

### Cost Account

It is a statement showing cost of production per unit or total output. Cost account is a ledger account maintained in the Cost Ledger on the principles of double entry.
It is an independent and isolated summary of costs relating to a job or a certain volume of output. Every cost account is a part of integrated cost accounting system of the entire organisation.
It is prepared for a short period, say for three or six months while production continuous. Cost accounts are kept for accounting period as a whole and are prepared when the production is completed.
It shows the costing data in an analytical manner to suit the purpose for which it is prepared. Cost accounts make a presentation of total amount of costs without analysis.
It presents costing data on unit basis. Cost account does not depict unit cost.
It is prepared for the purpose of cost determination, cost comparison, pricing, cost control and cost estimation. Cost accounts make a record of actual costs incurred for the purpose of preparing Costing Profit and Loss Account.

## Types of Cost Sheet

### Historical Cost Sheet

A historical cost sheet is a statement of costing that records all the expenditures and costs that have been incurred by an organization, i.e., the actual costs incurred (directly or indirectly) during a particular period.

This particular type of cost sheet application is illustrated above in a practical way.

### Estimated Cost Sheet

Cost Statements are prepared in advance before goods and services are produced. This document is created and used by organizations to determine the costs they will incur, to determine their potential and profitability, as well as to set a suitable selling price.

An appropriate price for the goods or services will be quoted using this type of cost sheet when filling out tenders or taking contracts.

## Cost Sheet Format

Particulars Amount Amount
Opening Stock of Raw Material ***
Add: Purchase of Raw materials ***
Less: Closing stock of Raw Materials ***
Raw Materials Consumed ***
Direct Wages (Labour) ***
Direct Charges ***
Prime cost (1) ***
Factory Rent ***
Factory Power ***
Indirect Material ***
Indirect Wages  Supervisor Salary ***
Drawing Office Salary ***
Factory Insurance ***
Factory Asset Depreciation ***
***
Works cost Incurred ***
Add: Opening Stock of WIP ***
Less: Closing Stock of WIP ***
Works cost (2) ***
Office Rent ***
Asset Depreciation ***
General Charges ***
Audit Fees ***
Bank Charges ***
Counting house Salary ***
Other Office Expenses ***
Cost of Production (3) ***
Add: Opening stock of Finished Goods ***
Less: Closing stock of Finished Goods ***
Cost of Goods Sold ***
Sales man Commission ***
Sales man salary ***
Traveling Expenses ***
Delivery man expenses ***
Sales Tax ***
Cost of Sales (5) ***
Profit (balancing figure) ***
Sales ***

## FAQs,

### Which one of the following is not considered for preparation of cost sheet

a) Factory cost
b) Goodwill written off
c) Labour cost
d) Selling cost

The Correct Answer for the given question is Option b) Goodwill written off.

Explanation:

A cost sheet does not take into account goodwill written off. When a firm wants to shrink the balance sheet or if it thinks the goodwill doesn’t matter, it will write off the goodwill.

You may also like:

Components of the Annual Report – Annual Report | Financial Accounting

Latest posts by Smirti (see all)