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Term Paper on Cost Sheet  

Term Paper Contents:

  1. Term Paper on the Meaning and Definition of Cost Sheet
  2. Term Paper on the Purpose of Preparing Cost Sheet
  3. Term Paper on the Specimen of Cost Sheet
  4. Term Paper on the Cost Sheet and Production Account
  5. Term Paper on the Cost Sheet and Production Statement
  6. Term Paper on the Treatment of Stocks while Preparing Cost Sheet
  7. Term Paper on the Estimation of Tenders and Quotations during the Preparation of Cost Sheet
  8. Term Paper on the Important Points to be Remembered during the Preparation of Cost Sheet

Term Paper # 1. Meaning and Definition of Cost Sheet:

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The expenses of a product are analysed under different heads in the form of statement. This statement is called cost sheet.

Walter & Bigg define, “The expenditure which has been incurred upon production for a period is extracted from the financial books and the store records, and set out in a memorandum or a statement. If this statement is confined to the disclosure of the cost of the units produced during the period, it is a termed as a cost sheet”. In other words cost sheet is a statement showing the total cost under proper classification in a logical order.

A cost sheet is a statement prepared to show the different elements of cost. Preparation of cost sheet is one of the functions of cost accounting. It is used to compile the margin earned on a product or job, and can form the basis for the setting of prices on similar products in the future. It can also be used as the basis for a variety of cost control measures. Despite the name, a cost sheet can be compiled and viewed on a computer screen, as well as being manually developed on paper.

Term Paper # 2. Purpose of Preparing Cost Sheet:

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1. It provides details of total cost under logical classification.

2. It provides cost per unit in difference stages.

3. It helps in comparison and control of cost.

4. Cost sheet is helpful in estimation of cost for preparation of tender and quotations.

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5. It acts as basis for fixation of selling price.

Term Paper # 3. Specimen of Cost Sheet:

Specimen of Cost Sheet

Prime Cost:

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This is also called direct cost. It is the aggregate of direct materials direct labour and direct expenses, which are easily identifiable with the product.

i. Work Cost:

It consists of the total of all items of expenses incurred in the manufacturing of a product, viz., prime cost plus factory expenses. It is also known as factory cost or manufacturing cost.

ii. Cost of Production:

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This includes work cost and administration expenses. Production is not deemed to be complete without the managerial and facilitating costs.

Cost of Sales:

It represents cost of production plus selling and distribution cost incurred. Thus, the cost of sales is the aggregate of all the direct and indirect costs connected to the goods sold.

When profit is added to the cost of sales, sales can be found. Usually, selling prices are fixed on the basis of the cost of sales. It ensures that all the costs are recovered and any desired profit is also obtained.

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Term Paper # 4. Cost Sheet and Production Account:

Cost sheet is a statement of total cost under different classifications of costs. The classification of cost is done on the basis of elements of cost, functions and behaviour of cost. The total cost in the form of cost of sales and cost per unit is revealed.

On the other hand, the cost, sales, and profits presented in the form of a ledger account is known as production account or manufacturing account. The debit side of the account is shown with opening stock, expenses and the credit side is shown with closing stock and sales. The balancing figure is either profit or loss.

Term Paper # 5. Cost Sheet and Production Statement:

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The cost of output can be ascertained from the statement known as cost sheet. The items of various costs are extracted from financial books and presented in logical order. Thus, total cost of a cost centre or cost unit is shown in the cost sheet.

When sales, stocks and profits are included in the cost sheet it is called production statement. Bigg has defined it as “The expenditure which has been incurred upon production for a period is extracted from the financial books and stores records and set out in a memorandum statement. If the statement is confined in the disclosure of the cost of the units produced during the period it is termed as cost sheet, but where the statement records, cost, sales and profit it is usually known as production or output statement or account”.

However the modern practice is to extend the cost sheet to show profit and sales also and call it “statement of cost and profit”.

Term Paper # 6. Treatment of Stocks while Preparing Cost Sheet:

Stock requires special treatment while preparing a cost sheet stock may be of:

1. Raw materials,

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2. Work-in-progress and

3. Finished goods.

1. Stocks of Raw Materials:

When opening stock of raw materials, purchase of raw materials and closing stock of raw materials are given, raw materials consumed can be calculated as follows:

Stocks of Raw Materials

2. Stock of Work-in-Progress:

‘Work-in-progress’ means a unit of production on which work has been done but is not yet completely finished. Work-in-progress is valued on prime cost or works cost basis but the latter is preferred.

The opening and closing work in-progress are adjusted as given below:

Stock of Work-in-Progress

3. Stock of Finished Goods:

If opening and closing stocks of finished goods are given they are to be adjusted to find out cost of production of goods sold.

Stock of Finished Goods

Specimen of Cost sheet, with inventories Statement of Cost and Profit (with stocks):

Specimen of Cost Sheet

Term Paper # 7. Estimation of Tenders and Quotations during the Preparation of Cost Sheet:

Frequently the manufacturers of consumer durables and capital goods are asked to quote the price at which they can supply their output. The price at which the items of output are offered for sale is known as ‘tender’ or ‘quotation’ price. The tender has to be prepared carefully since it may be accepted and goods have to be supplied in future at the quoted rate.

In order to prepare the tender the following items are to be analysed:

1. Raw materials

2. Direct labour.

3. Chargeable expenses

4. Works overhead

5. Office overhead

6. Selling overhead

7. Estimated profits.

Estimation of different elements of cost has to be made.

The following are the accepted norms:

(A) Direct material and direct labour cost is generally estimated on the basis of ‘cost per unit’ of preceding period, subject to fluctuations in the marked price of materials and labour rates.

(B) Overhead is estimated on the basis of past experience as a percentage as given below:

1. Percentage of Factory Overheads to Direct Wages:

2. Percentage of Office Overheads to Works Cost:

3. Percentage of Selling and Distribution Overheads to Works Cost:

Or

The percentage may be calculated on cost of production

The overhead percentages obtained on the basis of preceding period’s cost sheet are used for the tender by giving due regard to likely changes anticipated.

(C) Estimation of Profit for a Tender or Quotation Sometimes profit is given as percentage of cost.

In that case profit for the tender is ascertained as given below:

If profit is to ascertain as a percentage of selling price of the tender, the profit is to be calculated as given below:

Term Paper # 8. Important Points to be Remembered during the Preparation of Cost Sheet:

Alternative terms are used for many items in cost sheet:

The following are some of them:

(a) Direct Labour – Direct wages, Production wages, Productive wages, Productive labour

(b) Direct expenses – Chargeable expenses

(c) Overhead – ‘On-cost’, ‘Burden’

(d) Factory overhead – Works-overhead, production overhead, manufacturing overhead

(e) Factory cost – Works cost, Manufacturing cost

(f) Administrative overhead – Office overhead

1. Valuation of Stocks of Finished Goods:

When details of units produced and sold are available, the closing stock of finished units can be valued at ‘current cost of production’.

Value of closing stock units:

= Cost of production × closing stock units

If value of opening stock units is not given, they can also be valued on the current cost basis, assuming that costs in the previous period were similar to the current period.

2. Sale of Material Scrap:

It can direct material scrap and can be shown as a deduction from direct material cost. It may also be indirect material scrap in which case it has to be reduced from the factory overhead cost.

When there is no indication, either method can be followed by stating the assumption.

3. Items Excluded from Cost Accounts:

(a) Purely financial expenses and losses like interest on loans and debentures, loss on sale of investments and fixed assets, cash discount.

(b) Provisions like provision for income tax, provision for doubtful debts.

(c) Capital expenses and losses written off like goodwill; preliminary expenses, discount on issue of shares, etc.

(d) Appropriations like dividends paid transfer to reserves.

4. Profit Given as Percentage of Selling Price:

Usually profit is added to the cost of sales to ascertain the sale price. If profit percentage is given on sales, it must be converted to percentage on cost.

For example if profit is 20% on sale.

Sales is 100; profit 20/Cost = 100 – 20 = 80

Profit to cost 20/80 = 1/4 (or) 25%

5. Standard Assumptions:

In the context of tenders or quotations, the following assumptions can be made if nothing contrary is given in the problem:

(a) Factory overhead to direct wages ratio of the previous period holds good for current period also.

(b) Administrative overhead to works cost ratio of the previous period is applicable in current period also.

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