Key Concepts
- Cost Sheet: A statement showing detailed cost information for a product/service.
- Functional Classification of Costs:
- Production/Manufacturing
- Administration
- Selling
- Distribution
- R&D
Cost Heads in a Cost Sheet
- Prime Cost = Direct Materials + Direct Labour + Direct Expenses
- Direct Material Consumed: [ Opening Stock + Purchases – Closing Stock ]
- Includes freight, insurance, duties (if ITC not available), less discounts.
- Direct Labour: Wages, overtime, PF, incentives, retirement benefits.
- Direct Expenses: Royalty, hire charges, utilities, product-specific software/design.
- Cost of Production = Prime Cost + Factory Overheads ± WIP + QC + R&D + Production Admin OH – Scrap + Primary Packing
- Factory Overheads: Indirect costs (depreciation, repairs, insurance, indirect labour, service dept. costs).
- WIP Adjustment:
[ Works Cost + Opening WIP – Closing WIP ]
- Cost of Goods Sold (COGS) = Cost of Production ± Finished Goods Stock
- Cost of Sales = COGS + General Admin OH + Selling OH + Distribution OH + Secondary Packing
Important Formulae
- Prime Cost: [ Prime Cost = Direct Materials Consumed + Direct Labor + Direct Expenses]
- Works Cost: [ Works Cost = Prime Cost + Factory Overheads ]
- Factory Cost: [ Factory Cost = Works Cost + Opening WIP – Closing WIP ]
- Cost of Production: [ Cost of Production = Factory Cost + QC Cost + R&D Cost + Production Admin OH – Scrap + Primary Packing ]
- COGS: [ COGS = Cost of Production + Opening FG – Closing FG ]
- Cost of Sales: [ Cost of Sales = COGS + General Admin OH + Selling OH + Distribution OH + Secondary Packing ]
- Profit: [ Profit = Sales Revenue – Cost of Sales ]
Advantages of Cost Sheet
- Shows total cost & per-unit cost.
- Facilitates cost comparison.
- Helps in tender preparation.
- Assists in pricing decisions.
- Aids cost control & efficiency analysis.
Treatment of Special Items
- Abnormal Costs → excluded (e.g., pandemic costs).
- Subsidy/Grant/Incentives → deducted from related cost.
- Penalty/Fine/Damages → excluded.
- Interest & Finance Charges → shown separately, not part of production cost.
Quick Illustration (Formula Application)
- Example:
Raw Materials Consumed = Opening RM + Purchases – Closing RM
Prime Cost = RM Consumed + Direct Wages + Direct Expenses
Factory Cost = Works Cost + Opening WIP – Closing WIP
Cost of Production = Factory Cost + QC + R&D + Production Admin OH – Scrap + Primary Packing
COGS = Cost of Production + Opening FG – Closing FG
Cost of Sales = COGS + Admin OH + Selling OH + Distribution OH + Secondary Packing
Profit = Sales – Cost of Sales
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