The objective of any cost accounting, costing, and cost sheet, is simple; derive the cost of goods based upon the cost that has been incurred to manufacture those goods.
The concept of costing, which is also known as cost accounting, in some cases, is quite a new one. The connotation of cost accounting, which developed as a forecasting and credit provision calculation, has its origins in the concepts of financial accounting and bookkeeping; a centuries old activity. In common financial accounting, incomes and expenditures or any transaction is recorded as it is conducted. However, in case of cost accounting, the exact opposite takes place, as the transaction is conducted before it actually takes place. The ‘cost’ of production, raw materials, conducting business, and operating the establishment, is forecast using precise data, and in return, is used to derive the cost of goods that are to be sold.
For any kind of production process, an establishment incurs cost. This cost is added up, and some inclusions and deductions are made. Then, a profit margin is added to it, which is the final cost and ideal price of sale. A cost sheet can be used for several purposes, such as quoting costs to clients, assessing and forecasting sales prices, forecast projections, and even reporting to the management. This document consists of some important elements.
- The first option is of course the prime cost. In the prime cost, all the costs that are directly arising in the production are included. This consists of all the labor that works on the job, and the raw material that is purchased. In cases where machines are used, power supply for the same in terms of machining hours is considered.
- The second section is of the production cost or the factory cost. Expenses arising within the factory right from rent to depreciation are included in the factory cost.
- The third section is the office cost. This section consists of all managerial and administrative costs, plus some taxes and duties. Research and development is considered in the office cost, owing to the fact that its expenditure is not directly included in the cost of production. Cost of research is a one-time cost, and hence, it would be divided and levied on all cost sheets.
- Sales cost connotes all the costs that are included in the sales operations. This will include advertising and marketing expenditures.
Sample Cost Sheet
|Cost Sheet for…|
|1.||Prime Cost||Amount in $|
|1.3||Direct power/fuel as per machine hours||$…|
|2.||Factory Cost||Amount in $|
|2.3||Power supply cost||$…|
|2.7||Taxes and Excise||$…|
|2.8||Factory administration cost||$…|
|2.9||Machine costs as per machine hours||$…|
|3.||Office Cost||Amount in $’s|
|3.2||Accountant and Clerk salary||$…|
|3.4||Operational costs (e.g.: stationery)||$…|
|3.7||Research and development cost||$…|
|4.||Sales Cost||Amount in $’s|
|4.4||Sales tax and duties||$…|
|4.5||Operational cost of sales||$…|
|5||Profit (in %)||$…|
You will have to add or remove some of the elements as per your specific needs. Several companies disclose this sheet to some of their clients, or while issuing quotations or tenders.