What is a cost sheet?
Cost Sheet or statement of cost shows the total cost as well as cost per unit for a given period. Total cost is calculated in a logical order and under proper divisions of cost. It shows prime cost, works cost, cost of production, cost of goods sold, and total cost. it is prepared for a specific period as a week, a month a quarter, or a year.
Thus it is a statement designed to show the output of a particular accounting period along with a break-up of costs. The data incorporated in the cost sheet are collected from various statements of accounts that have been written in cost accounts.
There is no fixed form for the preparation of the cost sheet. But in order to make the cost sheet more useful, it is generally presented in columnar form. The columns are for the total cost of the current period, per unit for the current period, total cost and per-unit cost for a preceding period, total and per-unit cost for the budget period, and so on. The information to be incorporated in the cost sheet would depend upon the requirement of the management for the purpose of control.
The cost sheet is a memorandum statement. Therefore, it does not form part of double-entry cost accounting records. In spite of this, the relationship between cost sheet and financial accounts which are maintained on the double-entry system is very important as the cost sheet derives its data from financial accounting. In case predetermined rates are not used, the entire data required for the preparation of the cost sheet is derived from financial accounting. Therefore, periodically it becomes necessary to reconcile the information obtained from cost accounting and financial accounting separately. The cost sheet when presented in "T" form is known as Production Account.
What is the purpose of the Cost Sheet?
The main purposes or advantages of the cost sheet are:
- It discloses the total cost and the cost per unit of the units produced during the given period.
- It enables a manufacturer to keep a close watch and control over the cost of production.
- By providing a comparative study of the various elements of current cost with the past result and standard costs, it is possible to find out causes of variations in costs and eliminate the adverse factors and conditions which go to increase the cost.
- It acts as a guide to the manufacturer and helps him in formulating a definite useful production policy.
- It helps in fixing up the selling price more accurately.
- It helps the businessman to minimize the cost of production when there is a cus throat competition.
- It helps the business man to submit quotations with reasonable degree of accuracy against tenders for the supply of goods.
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