What is Cost Sheet?

COST SHEET
For determination of total cost of production a statement showing the various elements of cost is prepared. This statement is called as a ‘statement of cost’ or ‘cost sheet.’ Cost sheet is a statement, which provides for the assembly of the detailed cost of the total cost of job operation or order. It brings out the composition of total cost in a logical order, under proper classifications and sub-divisions. The period covered by the cost sheet may be a week, a month or so. Separate columns are provided to show the total cost and cost per unit. In case of multiple products a separate cost sheet may be prepared for each product. Alternatively, separate columns of total cost and unit cost may be provided for each product in the same cost sheet. A cost sheet is prepared under output or unit costing method.

Purposes of cost sheet:
Cost sheet serves the following purposes: 
1. It gives the break up of total cost under different elements.
2. It shows total cost as well as cost per unit
3. It helps comparison with previous years.
4. It facilitates preparation of tenders or quotations
5. It enables the management to fix up selling price
6. It controls cost.

DIVISIONS OF COST

Prime Cost:It comprises of all direct materials, direct labour and direct expenses. It is also known as flat cost.
Prime Cost = Direct Materials + Direct Labour + Direct Expenses.

Works Cost:It is also known as factory cost or cost of manufacture. It is the cost of manufacturing an article. It includes prime cast and factory expenses.
Works Cost = Prime Cost + Factory Overheads

Cost of Production:It represents factory cost plus administrative expenses
Cost of Production = Factory Cost + Administrative expenses

Total Cost:It represents cost of production plus selling & distribution expenses
Total Cost = Cost of production + Selling & distribution - expenses

Selling Price: It is the price, which includes total cost plus margin of profit or minus loss, if any.
Selling Price = Total Cost + Profit (-Loss)

Selling price for any commodity is determined by analyzing all the factors such as expenses, cost, profit margin etc.

Some of the terms related to selling prices are:

• Purchase Price: It is the cost price – the price you pay to buy the product

• Mark-Up: It is the amount you add to the purchase price to get the selling price

The formula for calculating a selling price is:

Selling price = Purchase price + Mark-Up

In order to determine the cost of sales it is necessary to consider a number of issues in this calculation, such as the freight in, which refers to the cost of freight on the goods purchased. In businesses where goods are manufactured, other expenses that appear in the cost of goods sold may include raw materials, manufacturing expenses, manufacturing labour.

Another major factor considered in order to determine selling price is the gross profit as it shows how much money we made from our trading activities.

The calculation used to determine gross profit is:

Gross profit = Sales Revenue - cost of goods sold

 After calculating your gross profit, your next step is to calculate your operating expenses. Operating expenses are expenses that a business incurs in its day-to-day operation.  Some examples of operating expenses include: Accounting fees, advertising, power, rent, vehicle expenses, wages, insurance, telephone, maintenance etc.

Net profit could be determined by subtracting operating expenses from gross profit. This is calculated in a profit and loss account. The profit and loss account is a financial report showing the gross profit, from the trading account, less the operating expenses to produce a net profit for the period.

Based upon above theory explained we would analyze the case of food industry in which how hotels determine the price on the menu cards. The most common standard used in the foodservice industry is a standard recipe. A standard recipe is a written formula used to produce a food or beverage item that uses the same quantity and quality of product and the same method of preparation each time the product is made. Using a standard recipe promotes consistency in product and ultimately leads to customer satisfaction. Having standard recipes and properly training staff to follow the standard recipe in preparation will prevent inconsistency. Standard recipes should be written in edible portion form. If a recipe is prepared using the same quality and quantity of ingredients in their edible form and using a prescribed method of preparation, a standardized and consistent product will always result.