Cost Sheet: Meaning, Objects and Method of Preparation | Cost Accounting (2024)

Let us learn about Cost Sheet. After reading this article you will learn about: 1. Meaning of Cost Sheet 2. Objects of Preparing a Cost Sheet 3. Method of Preparation.

Meaning of Cost Sheet:

Cost Sheet is a statement which presents detailed information relating to the various stages of cost. It also shows the total cost of the product manufactured during a particular period of time. Thus, the cost sheet is prepared for a particular period of time monthly, quarterly, yearly etc.

Objects of Preparing a Cost Sheet:

A cost sheet is prepared for:

(i) The total cost and cost per unit of the product can be ascertained;

(ii) It helps the management to fix up the selling price on the basis of the cost per unit of the product after charging certain percentage of profit on cost;

(iii) It also helps the management presenting a comparative study of current cost with the exis­ting cost per unit;

(iv) After proper comparison the management can take the corrective measures;

(v) It helps the management while formulating suitable production policy;

(vi) It is very helpful to submit a price quotation for tenders; and

(vii) It also helps the management by supplying suitable information for management control.

Method of Preparation of Cost Sheet:

Step I = Prime Cost = Direct Material + Direct Labour + Direct Expenses.

Step II = Works Cost = Prime Cost + Factory/Indirect Expenses.

Step III = Cost of Production = Works Cost + Office and Administration Expenses.

Step IV = Total Cost = Cost of Production + Selling and Distribution Expenses. Profit = Sales – Total Cost.

The above method can better be presented with the help of the following proforma Cost Sheet: