Table of Contents
Cost Sheet
Meaning:
A document which provides a detailed cost information. It is also called cost statement. It is presented on the basis of functional classification.
Cost Heads
- Prime cost
- Cost of Goods Sold (COGS)
- Cost of Production
- Cost of Sales
Treatment of various items
(i) Abnormal costs: Any abnormal cost, where it is material and quantifiable, shall not form part of cost of production or acquisition or supply of goods or provision of service.
(ii) Subsidy / Grant / Incentive: Reduced from cost objects to which such amount pertains.
(iii) Penalty, fine, damages & demurrage: Does not form part of cost.
(iv) Interest and other finance costs: Not included in cost of production.
Advantages
- Provides total cost figure as well as cost per unit of production.
- Helps in cost comparison.
- Facilitates preparation of cost estimates required for submitting tenders.
- Provides sufficient help in arriving at figure of selling price.
- Facilitates cost control by disclosing operational efficiency.
Formats
1. Cost Sheet
| Particulars | Total Cost (₹) | Cost per Unit (₹) |
|---|---|---|
| Direct Materials Consumed: | ||
| Opening Stock of Raw Materials | XXX | |
| Add: Purchases | XXX | |
| Add: Carriage Inward | XXX | |
| Less: Purchases Return / Discount | (XXX) | |
| Less: Sale of Scrap of Material | (XXX) | |
| Less: Closing Stock of Raw Materials | (XXX) | |
| Total Direct Materials Consumed | XXX | XX |
| Add: Direct Employee Cost | XXX | |
| Add: Direct Expenses | XXX | |
| Prime Cost | XXX | XX |
| Add: Factory Overheads | XXX | |
| Gross Works Cost | XXX | |
| Add: Opening Work-in-Progress | XXX | |
| Less: Closing Work-in-Progress | (XXX) | |
| Works / Factory Cost | XXX | XX |
| Add: Quality Control Cost | XXX | |
| Add: Research & Development Cost | XXX | |
| Add: Administrative Overheads (related to production) | XXX | |
| Less: Credit for Recoveries / By-products | (XXX) | |
| Add: Primary Packing Cost | XXX | |
| Cost of Production | XXX | XX |
| Add: Opening Finished Goods | XXX | |
| Less: Closing Finished Goods | (XXX) | |
| Cost of Goods Sold | XXX | XX |
| Add: Administrative Overheads (General) | XXX | |
| Add: Secondary Packing Cost | XXX | |
| Add: Marketing Overheads | XXX | |
| Add: Selling Overheads | XXX | |
| Add: Distribution Overheads | XXX | |
| Cost of Sales | XXX | XX |
| Add/Less: Profit or Loss | XXX | |
| Sales | XXX | XX |
2. Direct Materials Consumed
| Particulars | Amount (₹) |
|---|---|
| Opening stock of Raw Materials | XXX |
| Add: Purchases / Additions | XXX |
| Add: Freight / Carriage Inwards | XXX |
| Add: Insurance / Tax (if ITC not availed) | XXX |
| Less: Trade Discounts / Rebates | (XXX) |
| Less: Scrap of Materials | (XXX) |
| Less: Purchases Returns | (XXX) |
| Less: Closing stock of Raw Materials | (XXX) |
| TOTAL RAW MATERIALS CONSUMED | XXX |
3. Direct Employee Cost
- Wages and salary (including outstanding)
- Allowances and incentives
- Payment for overtimes
- Bonus / ex-gratia
- Employer’s contribution to ES / PF
- Leave with pay
- Free / subsidized food
- Perquisites for retirement benefits
- Leave travel concession
4. Direct Expenses
- Cost of utilities (power, fuel, steam, etc.)
- Royalty paid
- Hire charges for hiring specific equipment
- Fee for technical assistance and know-how
- Amortised cost of moulds, patterns, etc.
- Cost for product specific design / drawing
- Cost of product specific software
- Job charges paid to job workers
5. Factory Overheads
- Carriage on purchase return
- Consumable stores
- Depreciation on P&M, factory building
- Lease rent of production assets / Plant-leasing cost
- Repair & maintenance of P&M, etc.
- Indirect employee costs
- Hire charges for plant (general)
- Drawing and designing department cost
- Store OHs
- Insurance of P&M, stock of raw material and WIP
- Amortised cost of jigs, fixtures, tooling
- Service department costs such as Tool Room, Engineering & Maintenance, Pollution Control
- Salary paid to supervisor
- Canteen expenses
- Material handling costs
- Additional expenses for rectification of defective products
- Property taxes
6. General Administrative Overheads
- Depreciation / Maintenance of office building, furniture, etc.
- Salary of administrative employees, directors, accountants, etc.
- Rent, rates & taxes, insurance, lighting
- Indirect materials - printing & stationery
- Legal charges
- Audit fee & directors’ sitting fee
- Meeting expenses
- Remuneration & commission
- Bank charges
7. Administrative OHs (Related to Production)
- Expenses paid for administration of factory work
- Salary paid to production control manager
8. Profit & Loss Statement
| Particulars | Amount (₹) |
|---|---|
| Gross Sales | XXX |
| Less: Sales Return / Rebate | (XXX) |
| XXX | |
| Less: Cost of Sales (excluding interest on borrowed funds, if any) | (XXX) |
| NET OPERATING PROFIT | XXX |
| Less: Interest on Borrowed Funds | (XXX) |
| NET PROFIT | XXX |
Formulae
- Selling Overheads = Units sold × Selling cost per unit
- Closing Stock of Finished Goods (in ₹) = {(Cost of Production / Units Produced excluding Opening Finished Goods) × Units of Closing Stock}
- Profit (%) = {Profit / Sales} × 100 [For problem, refer MTP - November 2020]
- Cost of Goods available for Sales = Cost of Production + Opening Finished Goods
- Conversion Cost = Direct Labour Cost + Production Overheads
- Closing Finished Goods = Cost of Goods available for Sales + Cost of Sales [For problem, refer MTP - April 2025: Qn. 2(a)]
Points to Remember
- Administrative overheads are treated as general overheads when the question is silent regarding their nature.
- Cash discount is not considered while calculating direct materials consumed.
- GST paid under the composition scheme should be added to cost, as it is blocked under Section 17(5).
- The value of scrap of materials is deducted from raw materials consumed.
- Scrap generated from the manufacturing process is deducted from works or factory cost.
- The cost of secondary packing is classified as distribution overhead, not selling overhead.
- Closing stock of finished goods must be calculated and deducted when both units produced and units sold are given, by applying the prescribed formula for closing stock of finished goods.