Rohit Agarwal 9883248954
Chapter 1: Cost Sheet M/s. XYZ Ltd. Cost Sheet for the year ending 31st March 2009 Particulars Raw Materials Consumed: Opening Stock of Raw Material Add: Purchase of Raw materials Add: Purchase Expenses Less: Purchase Returns Less: Abnormal Loss of Raw Materials Less: Closing stock of Raw Materials Direct Wages (Productive Labour) Direct Expenses (Chargeable Expenses) Royalty Adjustment for WIP at Prime Cost: Opening Stock of WIP Less: Closing Stock of WIP PRIME COST Add : Factory Overheads: Factory Rent, Power Indirect Material Indirect Wages Supervisor Salary Factory Asset Depreciation Less: Sale of Scrap Adjustment for WIP at Manufacturing Cost: Opening Stock of WIP Less: Closing Stock of WIP WORKS COST Add: Administration Overheads: Office Rent Office Asset Depreciation Audit Fees Bank Charges Other Office Expenses COST OF PRODUCTION Adjustment for Stock of Finished Goods: Opening stock of Finished Goods Less: Closing stock of Finished Goods ( Note 2) COST OF GOODS SOLD Add: Selling and Distribution Overheads: Salesman Commission, salary, etc. Traveling Expenses Advertisement Delivery-man expenses Sales Tax Bad Debts COST OF SALES PROFIT (balancing figure) SALES
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Rohit Agarwal 9883248954 Working Notes: 1. Opening Stock + Units Produced = Units Sold + Closing Stock 2. Valuation of Closing Stock of Finished Goods:
FIFO Basis: Value of Closing Stock of Finished Goods = Cost of Production X Units of Closing Stock Units Produced
LIFO Basis: Closing Stock of Finished Goods Opening Stock of Finished Goods Out of Current Production ( Value Given in Question) Cost of Production X Units Units Produced nd
3. Cost per Unit for this part is to be calculated by dividing the Amounts in 2 column by Units Produced . 4. Cost per Unit for this part is to be calculated by dividing the Amounts in 2 nd column by Units Sold 5. Items not to be considered in Cost Sheet: (i) Income Tax (vi) Interest (ii) Cash Discount (vii) Rents receivable. (iii) Donations, Dividend (viii) Losses on the sales of investments, (iv) Preliminary Expenses/ Goodwill building etc. written off. (ix) Profits made on the sale of fixed assets. (v) Transfer to reserves. (x) Transfer fee received.
Elements of Cost:
Cost: Cost is measurement, in monetary terms, of the amount of resources used for the purpose of production of goods or rendering services. The amount of expenditure (actual or notional) incurred on or attributable to a specified article, product or activity. Direct costs: Costs that are related to the cost object and can be traced in an economically feasible way. Indirect costs: costs: Costs that are related to the cost object but cannot be traced to it in an economically feasible way. Cost object – Anything for which a separate measurement of cost is desired. Examples of cost objects include a product, a service, a project, a customer, a brand category, an activity, a department, a programme.
A diagram as given below shows the elements of cost described as under: ELEMENTS OF COST MATERIALS COST
DIRECT MATERIALS COST
INDIRECT MATERIALS COST
LABOUR COST
DIRECT LABOUR COST
INDIRECT LABOUR COST
OVERHEADS
OTHER EXPENSES
DIRECT EXPENSES
INDIRECT EXPENSES
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Rohit Agarwal 9883248954
Direct labour: Labour which can be economically identified or attributed wholly to a cost object is called direct labour. For example, labour engaged on the actual production of the product or in carrying out the necessary operations for converting the raw materials into finished product. Direct expenses: It includes all expenses other than direct material or direct labour which are specially incurred for a particular cost object and can be identified in an economically feasible way. Indirect materials: Materials which do not normally form part of the finished product (cost object) are known as indirect materials. These are: Stores used for maintaining machines and buildings (lubricants, cotton waste, bricks, Stores used by service departments like power house, boiler house, canteen etc. Indirect labour : Labour costs which cannot be allocated but can be apportioned to or absorbed by cost units or cost centres is known as indirect labour. Examples of indirect labour includes - charge hands and supervisors; maintenance workers; etc. Indirect expenses: Expenses other than direct expenses are known as indirect expenses. Factory rent and rates, insurance of plant and machinery, power, light, heating, repairing, telephone etc., are some examples of indirect expenses. Overheads: Overheads: It is the aggregate of indirect material costs, indirect labour costs and indirect expenses. The main groups into which overheads may be subdivided are the following : (i) Production or Works overheads: Indirect expenses incurred in the factory and are incurred with the running of the factory. (ii) Office & Administration Overhead: Indirect expenses incurred in the direction, control and administration of an undertaking. (iii) Selling overhead: Indirect expenses incurred in the soliciting and securing orders from customers and of efforts to find and retain customers. (iv) Distribution overhead: Indirect expenses incurred from the time the product is completed in the factory until it reaches its point of sale. COST DIRECT
MATERIAL
INDIRECT
LABOUR
EXPENSES
MATERIAL
PRIME COST FACTORY OVERHEAD
LABOUR
EXPENSES
OVERHEAD OFFICE & ADMINISTRATION OVERHEAD
SELLING DISTRIBUTION OVERHEAD OVERHEAD
COST
Cost Centre: It is defined as a location, person or an item of equipment (or group of these) for which cost may be ascertained and used for the purpose of Cost Control. Cost Centres are of two types, viz., Personal and Impersonal. A Personal cost centre consists of a person or group of persons and an Impersonal cost centre consists of a location or an item of equipment (or group of these). Cost unit: It is a unit of product, service or time (or combination of these) in relation to which costs may be ascertained or expressed. We may for instance determine the cost per tonne of steel, per tonne kilometre of a transport service or cost per machine hour. Sometime, a single order or a contract constitutes a cost unit. Cost Accounting is defined as "the process of accounting for cost which begins with the recording of income and expenditure or the bases on which they are calculated and ends with the preparation of periodical statements and reports for ascertaining and controlling costs."
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Rohit Agarwal 9883248954
Advantages of a Cost Accounting are listed as below : (i) A good Cost Accounting System helps in identifying unprofitable activities, losses or inefficiencies in any form. (ii) The application of cost reduction techniques, operations research techniques and value analysis technique helps in achieving the objective of economy in concern’s operations. Continuous efforts are being made by the business organisation for finding new and improved methods for reducing costs. Concept of cost sheet A cost sheet is a statement showing components of total cost of output of a particular product or service produced during a particular period. It is useful in the following ways: (i) It helps us to know different components of total costs. (ii) It acts as a budgetary statement. Concept of cost accounting and financial accounting Financial Accounting Cost accounting The objective is to provide information about The objective is to ascertain cost, control cost and overall financial performance and financial to provide information for decision making. position of business. It is kept by all types of concerns including trading concerns. It shows the profit or loss of the business as a whole.
It is kept by businesses engaged either in manufacturing or in rendering services. It shows the profit or loss of each product, job, process or department.
Write answer of these questions in your copy: 1. Distinguish between: ISC 2005] a. Cost Centre & Cost Unit [ ISC b. Fixed Cost & Variable Cost. c. Cost Accounting & Financial Accounting d. Chargeable Expenses & Overhead Expenses e. Cost sheet & Profit & Loss Account. f. Prime Cost & Work Cost. [ ISC ISC 1996 ] g. Primary packing material & Secondary packing material ISC 1999] 2. Mention two uses of cost sheet. [ ISC [ ISC ISC 2000] 3. How is material consumed calculated? [ ISC ISC 2003] 4. Define Costing. ISC 2002] 5. How is stock of finished goods valued during the preparation of cost sheet? [ ISC 6. What is Work in Progress? 7. What is Production Supplies? 8. What is Consumable Stores? 9. What is treatment of sale of scrap? [ ISC ISC 1995] 10. What is Direct Cost? 11. Give two reasons why profits disclosed by cost sheet differ from those of financial accounts. [ ISC ISC 1998] [ ISC ISC 2004] 12. Mention the expenses not includible in Cost sheet. ISC 1993] 13. What is Prime Cost? [ ISC [ ISC ISC 2007 ] 14. Name four Types of Direct Expenses. ISC 2008] 15. What is: (a) Cost accounting; (b) Financial accounting? [ ISC
